50p Tax: What’s going through the Torys’ heads?

It is no secret that the Tories want to abolish the 50p tax band. There are few points more fundamental to Tory ideology than the belief that taxing the wealthy is not only bad for the economy but also morally wrong. It runs to the heart of their belief in individual freedom, economic liberalism and personal responsibility. The most surprising fact about the rumoured plans to abolish the 50p tax rate in the forthcoming budget is that it has taken the Tories the better part of two years in government to consider acting.

This is partly due to their coalition partners. The Liberal Democrats oppose the removal of the tax without the instigation of another tax on the wealthy in its place. They would prefer the Mansion Tax they proposed in their 2010 manifesto – which is also vehemently opposed by grass roots Conservatives. If the Tories were to repeal the 50p tax rate without implementing the Mansion Tax (or something similar) it could derail the coalition’s remaining legislative agenda at a time where Lib Dem support is essential to pass the government’s welfare reforms.

The second reason why the Tories have waited until now to considering removing the tax is fiscal. The government’s argument that the nation’s coffers are in such a dire state that all must make sacrifices for the economic wellbeing of the country carries little weight if it emerges that there is room in the budget to cut a substantial revenue stream. The Conservatives would be on dodgy political ground if as soon as they entered government they cut the essential services lower income earners rely on (such as EMA) and introduced a tax which falls disproportionally on the poor (the VAT rise) whilst also passing a tax break for the highest earners.

Sound economics does also lie behind the decision to keep the 50p tax rate. To reduce government borrowing as quickly as possible, tax streams would have to be kept at the current level or raised – hence the rise in VAT. Income Tax is the largest proportion of the government’s income from taxation, and high earners pay the lion’s share of this income.

So why act now? Again there is an economic case to repeal the tax. Growth has been poor since the coalition came to power, and many think tanks and economists believe that repealing the 50p tax would stimulate consumption of consumer durables (predominantly purchased by high earners) and boost the economy. It would also go some way toward attracting investment from overseas - although investment will be limited whilst growth remains sluggish. The Tories’ re-election and deficit reduction programme depend on growth rising in the next few years, and cutting taxes on high earners is seen as a short cut to achieving this.

There is also pressure to repeal the tax from within the Tory Party. Cameron has a problem with his own right flank, who feel that too many Liberal Democrat policies are on the agenda, that the government has not played hard ball sufficiently with the EU, and that Cameron is not doing enough to protect the international standing of Britain as a great nation. These MPs are also concerned about their own re-election under the Tory banner, and are crying out for some traditional Tory reforms to take back to their constituencies. Cameron’s failure to support the back-benchers’ proposed EU membership referendum has created resentment within his own party, and he needs a bone to throw to them to ensure they keep supporting the continuation of the coalition.

The Tories do have to consider the strong case for keeping the higher tax rate. Firstly, it generates essential revenue at a time when growth is slow and tax receipts are lower accordingly. Another key point to consider is that those who stand to benefit from the repeal of the rate are the very wealthy, and studies have consistently shown that the wealthy save a higher proportion of their income, whereas those with lower incomes spend the majority of their income out of necessity. If the government’s plan is to boost consumption, then conventional logic suggests the amount of money that circulates around the economy should be raised, rather than the amount left inactive in bank accounts.

Aside from this, the government is faced with a moral responsibility that any government should have, which is to help the less fortunate, the vulnerable, and those who cannot look after themselves. This government is failing in that regard as its austerity programme is cutting the services needed most by those whom society is supposed to look out for. To reduce taxes paid by those most capable of providing for themselves at this time would be a failure on a moral level.

If Osborne wishes to abolish the 50p tax band in tomorrow's budget, then he must consider the political fall-out with his Lib Dem coalition partners as well as the wider economic implications. He must also bear in mind that the most obvious logic of cutting taxes to boost consumption does not always hold true. Whatever decision is reached, it will certainly be considered a test of the Tories’ claim that all sections of society must make sacrifices in order to tackle the budget deficit. The Conservatives certainly would love to abolish the top tax bracket; whether they are willing to spend the political capital needed to do so will be a question that can only be answered by Wednesday's budget.

Austerity economics: how we were misled

Hindsight is wonderful thing in economics. Knowing exactly what should have been done at certain cross road in history to avert catastrophe has been the subject of many books and PhD thesis. The Former US Defence Secretary Robert S. McNamara once said that “historians are not interested in counterfactuals. The what might have beens.” Economists certainly are. Economists use the data from lead indicators, current indicators and lag indicators to work out exactly what the state of the economy is and what would be the best course of action. Sometimes this is simple, growth is low interest rates are cut and households have more money. Thus aggregate demand is boosted and there is a spike in growth. Usually it is much more complicated than that and the data shows no clear path to be taken out of a crisis.

In the absence of knowing for certain what needs be done, politics often comes into play in making the decision. In other words, the debate becomes about what should be done. The root of all politics is philosophy. Governments decided on a philosophy of marketization or state intervention and from this their politics and the economics follows. By the time this reaches the public in the form of social pressures it often appears that the facts have been twisted to be in line with the philosophy.

With the benefit of hindsight we can see that the Thatcher government’s curtailing of union powers was philosophical and not economic. It stemmed from her government’s ideological commitment to neo-liberalism and not a genuine need to decrease union powers to make the economy more prosperous and therefore grow faster. At the time it was sold as such but now we can see how the economics flowed from the politics and that the politics had its root in her philosophical views.

It is no longer fashionable for parties to have a clear ideology but there is still philosophy at the root of their politics. Nearly two years into the coalition government, with the benefit of hindsight, we can start to see how the philosophy has guided the economics and where the mistakes were made.

Austerity is the economics of the coalition government. In the campaign there was also a commitment to opening public services to market competition but this has been less forthcoming, especially with the woes associated with NHS reforms. When George Osborne became Chancellor he offered us a simple economic parable, cut the state and the private sector will grow. Two years later with growth lacklustre at best, unemployment higher than it has been at any point under Labour and the country teetering on the brink of another recession this parable seems more like a fairy tale - or a coma fantasy. In years to come Osborne’s austerity program will be seen as a result of his philosophical commitment to neo-liberalism rather than a response to the economic necessity of cutting the budget deficit. This goes hand in hand with his proposals to open public services to competition from private firms. Right now the philosophy is still being sold as economics, but it is politicians who are driving the economics and their philosophy which drives them.

Sociology is applied economics and the social consequence of economics facts - such as rising number of the unemployed – are seen in urban decay and public order offences. Last August’s riots were in essence the application of economic factors to the population and as incomes continue to fall and more and more people are out of work social breakdown becomes more likely.

Social breakdown is also in evidence in Greece were rioting against the government’s austerity program has become a feature of daily life. The Greek coalition government is attempting to impose a gruelling program of public sector cuts in order to secure essential funds from the European Central Bank and the International Monetary Fund to prevent a default on their sovereign debt. However with the Greek economy entering its fifth consecutive year of recession and the most recent data indicating that this recession is depending and not improving, austerity does not seem like the best course of action. Couple this with evidence from the UK that our recovery has faltered since the beginning of our program of cuts and the case for austerity in Greece looks pretty week. Of course the pressure for austerity emanates from the ECB and IMF and their control of the bail out money. These bodies, the IMF especially, also have philosophical ties to neo-liberalism and use their status as the world’s creditor to pressure their own political agenda. Economic good comes behind a philosophical world view and social consequences to the ordinary Greeks comes last of all. Hence the neo-liberal agenda of the IMF and others leads to rioting on the streets of Athens.

Austerity was sold to the public as economics when in actual fact it is a philosophy; a philosophy which the data – the life blood of economics – does not support. Until economists can see the future, they will always need philosophy and politics to guide them. Yet philosophy and politics need be informed the data of economic reality and must consider the social consequences of their actions. Philosophy and Politics are essential to governance, as they are a vision to aim for and a direction to travel in. Even this blog, ostensibly an economics blog, frequently wonders into politics and philosophy.

Hindsight is useful for knowing exactly which economic policy should have been adopted at a cross roads - like the one Britain and the Euro face. Lacking hindsight in the present we must always be aware that sometimes when politicians are selling us economic necessity they are in fact selling us their philosophical desires.

The Rolls Royce Government: The case for big government protecting social values

What does the Continental European model of social democracy and a Rolls Royce have in common? We will return to this metaphor after some brief analysis.

Last week David Miliband wrote in the New Statesman that Labour should not be the party of the “big state” - this comes against a recent trend of criticism of large governments, which many politicians believe, are bad for the economy and unpopular with voters. Western governments are not without their legitimate criticism as anyone who has had to claim benefits or submit a planning application will be aware of. The marsh of bureaucracy that the public has to deal with when they want something from their government creates a feeling of disillusionment with the virtues of the public sector which turns voters away from any politician who claims that we need more government to solve societies’ problems. The slick efficiency of the tills at Tesco stand in sharp contrast to the long periods of standing around waiting at the Job Centre. It is no wonder politicians who favour the selling of public services to private companies find voters agreeing with them at all levels of society.

The scepticism directed towards big government is partly a result of real fear caused by the European Sovereign Debt Crisis but it is also a definite effort to shift the agenda towards a free-market small government approach by those with vested interest in this opinion. This being large companies and right leaning governments keen to drum up support for their ideologically motivated austerity programs. Miliband argues that it was faith in big government which caused the Labour party to lose the public’s trust over the economy. He is pandering to the view that Labour is the party of the “nanny state” and that the Conservatives are the party of individual freedom.

I personally, have never had a problem with the label nanny state. When you think about it, who is a nanny? A warm and comforting figure that looks after children when they are cannot look after themselves. I cannot think of a better role model for government. However western voters are opposed to oppressive, overbearing regimes which meddle in the daily lives of their citizens. The fear behind this is also legitimate, only a fool in the West would want to live under a Cold War Communist regime. However, in the left learning parties of Europe’s desperate attempts to escape the spectre of being labelled a Marxist-Leninist, some of what was truly important about socialism has been washed away in the bland acceptance of the free market.

What is important about socialism is not a commitment to the big state but to a set of underlying principles that society should be directed towards income equality, the removal of class divides causes by wealth inequality, an equality of opportunity for all citizens as a birth right and safety net for those who are unable (temporally or permanently) to provide for themselves and their families. Self-reliance should not be the governing rule of society and the collective should look out for the individual. In exchange for this the individual must be willing to make a sacrifice for the good of the collective in terms of personal wealth and some degree of personal freedom. The social democratic parties of European - some of which are differentiated from the socialist parties of Europe and some of which are not – maintain the commitment to these values on a social level but not an economic one. In place of the economic proportion of socialism there is a general acceptance of the virtues of free market capitalism as the best method to allocate societies’ scarce resources.

David Miliband and the Brown Government embodied this notion of a commitment to social justice along with a commitment to small state free market capitalism. The coalition government has continued the shift towards right wing economic principles by further reducing the state at the expense of any commitment to the values of stated above. Miliband’s insistence that Labour move beyond the big state verses small state argument may win him support with voters but will do little to reassure those who believe that Labour has lost touch with the key values at the root of socialism from which the party draws its ideology.

I submit that a rebranding of the virtues of big government is needed by social democrats if they are to distinguish themselves from the economically right leaning parties and reconnect with the values at the root of their past popularity. This rebranding should be focused on the core values stated above. There are many who are concerned about the growing divide between the rich and the poor and how unevenly wealth is distributed across society. This is also where Rolls Royce comes in.

The typical criticism of big government by the right is three fold: 1, that state involvement in the market causes a problems for industry, 2, that that it requires higher taxation and 3, the old nanny state argument. I will take each point in turn:

Firstly, I have already written on the need for Capital Conscious Socialism. I have said that government should always be mindful of the needs of private business to provide employment when intervening in the economy. It is also worth considering that state invention is often necessary to make sure that industry allocates societies’ scare resources so that they create the most social good not economic good. An example of this is medicine, which should be allocated where it benefits society by curing diseases rather than where it is most profitable.

Secondly, the cost is key to the value of large Government. We should think of Government like a car. If we opt for the cheap option (economically right wing with low taxation and spending) then we will receive a cheap government, one which is ineffectual at meeting our needs and protecting our values. If we opt for the Rolls Royce government, which is expensive but capable then we will have a government that is empowered to tackle social problems and is something to be proud off. Spending more on our government should be viewed the same as buying a luxury car. That the price tag is part of the appeal because only with an expensive product can we achieve satisfaction from our spending.

Thirdly, social democrats should remind the public that it is their government’s duty to look after them and not simply get out of the way of private businesses. It is the role of government to embody the values of altruistic medieval kings. To clothe the naked, feed the poor, provide shelter for the homeless. Those who have the least are the most vulnerable to the problems created by wealth inequality and the basic safety net provided by the state ensure that the needs of the very worst off are not forgotten. The state may intervene in our lives to protect us from letting the selfishness - which the free market uses to drive economic growth - from entering our social conscience and thus kicking aside the poor, the vulnerable and the politically weak.

The values at the heart of socialism and big government will resonate with voters once framed within the right context. The argument of big state verses small state is not the right context. The argument of Rolls Royce against a budget banger is the right context. It is important that social democrats across Europe defend these values less society become deeply divided between rich and poor. The core values behind socialism are important in building a fairer society and there is still merit to the argument that big government can help to achieve this.

Ed Miliband would do wise to bare this in mind during his review of Labour’s policies - rather than listening to the supposed wisdom of his older brother. Many on the left hope the results of the policy review will bring the Labour party out of inertia and back into the business of providing a genuine alternative to the methods of the coalition government. Until that time we should remember that we get back from our government what we put in. If we give it scepticism and starve it of funds it will be ineffective at protecting our core values. If we view government spending as an important step to having a fairer society then we can empower government to tackle the root causes of social ills.

Facebook’s IPO: Are those adds worth $100bn

In the eight years since Facebook first appeared online, the site has gone from a way to waste time to a social necessity. Today (especially for younger users) not having a Facebook account is akin to not having a mobile phone, in that you are likely to be left out of the loop by friends and work colleagues. Now the internet giant’s recent IPO suggests that this social necessity could be worth up $100bn as a company.

Facebook was founded in 2004 by Harvard University undergraduate Mark Zuckerberg, and since then has taken the internet by storm. First it became the world’s largest social network with over 800 million users. Then the site replaced Google in its position as the internet’s most visited site. Now Zuckerberg and his team have earned a new record after raising over $5bn from an initial public offering, the largest ever for an internet firm. More than just a commercial success, Facebook has added new terms to the popular lexicon such “to friend” and has redefined the use of the verb “to like” online. Brands large and small have rushed to establish fan pages on the website and entire real world conversations focus on events which took place in the entirely virtual social network.

What is interesting about Facebook’s petition to be partially floated on the Stock Exchange is that the information they have released has given us a rare glimpse at the numbers behind Facebook’s success. Facebook and other internet companies that offer a free service lack a traditional revenue stream upon which to draw. Most fall back on the tried and tested method of advertising. The value of an advertisement on a website is determined by the “click through rate” in other words the percentage of users who click on an advertisement to be taken away from the page which they were browsing to one which they had not intended to visit, prior to seeing the advert. Research has suggested that click through rates for most websites are very low as most users are resistant to the idea of following links online. This is partially due to a legitimate concern about internet security but also a response to the degree to which users are saturated with banners and links tempting (often unsubtly) users to leave behind what they were interested in the first place. This has prompted concerns that that this revenue model has become out dated and that many internet firms might be overvalued.

Facebook has relieved that a substantial amount of their $1bn annual net revenue comes from advertising, leading to speculation that intelligent internet advertising is having a degree of success in tempting users. Firms like Facebook use the personal information supplied to them to customise their advertising space to a user’s tastes, and thus boost the click through rate. This in turn makes advertising space on Facebook more valuable, not simply because of the larger audience but because of a greater degree of success. Try, for an experiment, changing your relationship status to “engaged” and witness the barrage of wedding goods and services that will come out of Facebook’s proverbial woodwork to tempt you to their pages. Often the advertising is more subtle than this, and usually it is from a trusted website. It is this clever use of Facebook’s greatest asset (its members’ data) which makes it a viable company.

However, all is not rosy in Zuckerberg’s world. Internet users are becoming increasingly aware about how their data is being used. The wealth of information which Facebook has built up is also a liability as the public demand restrictions on how this data is used. Facebook’s privacy settings are becoming increasingly complex, which is creating an incentive for uses to switch to a network that is more mindful of privacy.

For now Facebook retains its dominant market position, and the necessity of having an account means this situation is unlikely to change soon. The site has seen off competition from a variety of other social networks seeking to challenge its dominance, and even Google entering the fray with their Buzz and later Google+ services have had little effect on the state of the market.

Facebook should be applauded for changing the way we relate to one another. Upon meeting a new friend at a party it is easier (and seems less forward) to connect with said person via Facebook than to ask for a phone number – mainly because it is also easier to remember a name rather than an 11 digit number.

However, Facebook would do well to consider an alternative revenue model as users become more concerned about privacy. It is also worth considering that the click through rates of intelligent advertisements will eventually fall as users become tried of their saturation, just as we all became tired of banners atop websites in the early days of the popular internet.

This week Facebook’s founders and executives will be congratulating themselves after their IPO sets another record for the company – but if the site’s meteoric rise proves one thing, it is how quickly the internet can change and how complacency is severely punished. For further proof of this, simply ask anyone who still has a MySpace account.

Capital Conscious Socialism

The state intervention versus free market argument has been raging for a while. It is an old debate about whether a large public sector chokes economic growth or whether there are issues of such importance that they should be decided by government and not left to private businesses. In the UK the three main political parties have adopted a lassie fair free market approach to capitalism but recently they have all been discussing the idea of ‘socially conscious capitalism’.

This is partly in response to the gross excesses of the financial services sector which lead to the several of the world’s largest banks having to be bailed out by their respective governments. Many feel that the banks owe us a debt for this beyond the amount of money spent propping them up. A lot of voters believe that there needs to be a change in corporate culture so that large companies become more aware of their debts to society and to their shareholders. Socially conscious capitalism appears to be the method of achieving this.

Socially conscious capitalism takes many forms but in general it entails giving shareholders more power to set board room pay and bonuses, the curtailing of bonuses for underperforming firms and greater transparency in terms of pay and bonuses for top earners. There are also general murmurs about working conditions and pay for those at the bottom of the pay scale but these are less and frequently ignored. Generally the later issues effects supermarkets more than banks as they have more employees earning minimum wage but a macro level it scales but to rising concern about business practices and noises from politicians that firms should be respectful of their stake in society.

David Cameron and the coalition government maybe in favour of socially conscious capitalism but I feel there is still a case for ‘capital conscious socialism’. This in essence is the case for government intervening in the market to prevent excesses, rather than encouraging companies to voluntarily behave in a socially responsible manner. Whilst the government is doing this it must remember that the private sector employees the majority of the people in the UK and is responsible for the lion’s share of our GDP. Therefore any inventions or legislation must also be in the interest of protecting jobs and growth.

In essence moral standards should be left to the government to enforce (who is accountable to their citizens) and private business should be responsible for providing employment and wealth to the citizens. This is similar to the means by which the government enforces safety standards. Would car companies have voluntarily agreed to seat belts and air bags were these measures not legally binding? The thought of simply encouraging car companies to include safety features or suggesting that the makers of house hold cleaning products put warnings on the packaging seems painfully week. Surely laws are the only way to protect the public and to ensure that we have the necessary information to look after ourselves. Implying that firms should be aware of their social obligations will have little success as firms are not compelled to alter their behaviour and there is no incentive for them to do so.

State invention is a harsh phrase that echoes back to the days of lumbering nationalised industries. I prefer to the use term ‘government planning’ to describe what is needed. The government should use its ability to legislate industry to plan our national finances to prevent economic collapse. This works on a micro scale, business and families plan their finances and set necessary controls to make sure they do not suffer financial ruin. However, the government’s planning of the economy must always be mindful that private business must thrive if we are to achieve a low level of unemployment.

A good example of government planning the economy is the proposed Tobin or Robin Hood tax; a small tax on finical transactions (that firms will not impose on themselves) the proceeds of which can be used to bail out companies that get into trouble and not leaving the bill to the tax player. The tax must be expectedly levied with the consultation of firms so not to cause harm to firms - which would restrict the amount of revenue generated by the tax.

Planning the roles of supermarkets in our economy would also offer a better social outcome. Supermarkets employee many poor and unskilled workers and offer a minimum wages which is far below what is needed to raise a family on. Reminding a supermarket that it has an obligation to consider wider society and the poor will do little or nothing to raise the wages and improve the working conditions of those at the bottom of the social pyramid. Government planning is needed to legislation a living wage that will ensure that families have enough money to afford essential. I do not see any provision or this in the coalition’s plan for socially conscious capitalism.

Placing the maintenance of society in the hands of private companies will not lead to optimisation of social goods. Socially conscious capitalism will not compel firms to be respectful of their stake in society. Capital conscious socialism will give government the mandate to intervene to the benefit of all whilst protecting private enterprise and our jobs.

Internships and Wealth Inequality

Internships have long been blamed as a means by which wealth remains concentrated amongst the upper classes. Most of the positions available at some of the UK’s largest and most prestigious firms to young people starting out on their careers are unpaid or come with a bare minimum of transport fees reimbursed. For young people looking to gain the vital experience necessary to secure a job, an additional source of income is needed to pay their cost of living during an internship which could last for several months. Firms expect an intern to be present during normal office hours which rules out most forms of employment and the long hours and demanding timetables frequently placed on interns also makes evening employment difficult. Generally interns rely on what has become known as ‘the bank of mum and dad’ meaning that only the children who have parents wealthy enough to pay their way can afford to take up an internship.

To a firm, having an internship is not only a desirable characteristic in a prospective new recruit but is increasingly become essential. In a government survey, one third of British firms said they would only hire a new recruit who already worked for them. The most obvious illustration of class perpetuation through internships is an annual Conservative Party fund raiser to which Mayfair based capital and equity firms donate internships which are then bid for by part donors, the proceeds going to the party. At this event, those who can afford to spend several thousand pounds to secure their child an internship at a top finical firm (as well as paying their children’s living cost during the internship itself) spend their money to guarantee one of their children will have a well-paid career.

The incentive for parents who can afford this for their children is clear. Not only is it a good way to give your child an advantage over the competition in beginning their corporate career but by ensuring your child has a well-paid position, parents are preparing for the retirement by providing their children with financial success. The net effect of the recruiters relying on internships to vet candidates at the beginning of their careers is the concentration of wealth amongst the privileged class. Only the wealthy can afford to furnish their children with the internships that are necessary to secure well-paid jobs.

Recently Nick Clegg and the coalition government have announced plans for major companies to offer more starting positions to people from less well-off backgrounds and to offer payment or living expenses to interns while they are working. Although this is noble in intent it fails tackle the root of the social inequity caused by the internship system. It is impressive that Nick Clegg has managed to convince so many large companies to agree to a scheme which offers firms little more than a PR boost, but by making the proposals opt-in rather than legally binding there is no incentive for most firms to alter their behaviour at all. An outright ban on internships would force firms to at least offer minimum wage to those gaining work experience which would go some way towards leveling the cost barriers to most young people taking up internships.

The plans are welcome news to those with an eye on becoming a senior corporate executive but hint at a fundamental flaw in the collation government’s approach the issue of wealth inequality; in that they expect private business to tackle the issue with government only very gently prodding the companies in the directing of socially conscious capitalism. Making internships more accessible to those who dream of vast corporate wealth is one thing but the issue at the heart of capitalism is the fact that regardless of how level you make the playing field, the majority of people will end up owning a small percentage of the wealth mean while a few people will own the majority. The question is what can be done about this and the answer the government suggests is ‘nothing’.

Reforming the internship mechanism may make it easier for those from poor backgrounds to get internships but will do almost nothing to tackle wealth inequity. It will also have a negligible effect on social mobility as there will remain a finite number of internships and even smaller number of people who reach the higher echelons of the corporate hierarchy. The people at the top of pyramid may vary slightly but this does nothing to comfort those at the base or those who question the virtues of a pyramid structure.

Hinting to large companies that they should be more socially aware will not solve the problems of a widening gap between the rich and the poor. Most of the coalition government’s austerity program is cutting the services that the poorest members of society depend upon. The government needs to do more to tackle wealth inequality rather than smoothing off the edges or implying that large firms should be readdressing the wealth balance themselves.

Should we spend away stagnation?

The Christmas period is traditionally a time for indulgence. Between company Christmas parties and drinks with friends one usually exceeds the usual level of food and drink intake. Most people also spend more during the holiday season. As well as gifts for friends and family, decorations for home and work there is the general spirit of excesses and the desire to treat oneself after a year of hard work. You would think that so many people letting loose with credit cards and Christmas bonuses would kick the economy into gear and begin the climb out of the stagnation that has dogged business since the end of the recession.

It’s logical but not always true. During last year’s Christmas period the British economy actually shrank for the first time since the recession official ended. Economists posted negative growth for the fourth quarter of 2010, two such consecutive quarters of negative growth constitute a formal return of the recession. So why did the economy shrink with all this over spending

There are a number of reasons for this. One was an increase in costs of production. Rising international oil and gas prices pushed up the cost of UK manufacturing and squeezed home’s budgets throughout the winter. Excesses around Christmas were matched by a cutting back elsewhere. The rise in production and transport costs restricted exports ultimate because our goods cost more and less money ended in the hands of the firms that produced the goods. When production costs are higher firms are unlikely to invest in new employees.

Not all of our present woes are the result of high energy prices. Partly it is the result of our patterns of consumption. Mince pies and turkeys are very pleasant but it is not the consumption of perishable goods that drives the economy. It is the purchase of consumer durables that drives growth and development. Although some people purchase fridges and television as Christmas presents this behaviour is hardly normal. If we are all perfectly rational in regard to the macro-economy in our Christmas shopping , we would all buy each other consumer durables. However in such a world we would all own too many fridges and have no food to put in them.

Politicians and executives of high street retain chains are keen to expose the values of spending away economic stagnation. As if the only thing prevent global economic recovery is austere Christmas parties. The solution to the problems of economic growth is not over spend now then have to cut back later. If you are especially concerned about growth rate of the British economy then consider buying a new car, television or computer system. Although in the current climate such purchases are out of the reach of most households.

The problems of our macro-economy require macro solutions such as investment in infrastructure to promote growth, guaranteed loans to business to encourage investment and programs to allow the unemployment access to jobs that go beyond simply slashing benefits. Encouraging the general public to over spend (especially financed by credit) is reckless and boost the revenue of Tescos but will not raise the long term trend rate of growth.

My advice to anyone during the holiday season is to reward yourself for a year’s hard work during difficult times but to remember that over spending is not the solution to your personal finical problems or the national ones. National problems require national solutions are not an increase in personal debt.

Kim Jong-il: An obituary

No right-thinking person would want to live in North Korea, or The Democratic People’s Republic of Korea to call it by its official name. Aside from the general advice to avoid any country with the word “Democratic” in its name, North Korea is a poor nation, gripped by famine and an overbearing authoritarian government. They are politically isolated and potentially unstable. Most of this is largely due to the personal influence of their recently deceased supreme leader, Kim Jong-il.

Kim Jong-il led one of world’s few remaining Stalinist states and the world’s only hereditary Communist authority. He became leader following the death of his father Kim Il-sung in 1994, who lead the nation since he was installed as the head of state following the Soviet invasion in 1945. The Kim’s created a vast personality cult surrounding themselves and their accomplishments. It is worthy of note that Kim Il-sung is still technically the Korean head of state as he was made Eternal President of the Republic after his death. Kim Jong-il was the de facto leader as he was the General Secretary of the Workers' Party of Korea, Chairman of the National Defence Commission and the Supreme Commander of the Korean People's Army.

During the 17 years of Kim Jong-il’s leadership, North Korea faced political isolation and came close to wars with South Korea, Russia and Japan on several occasions. When Communism collapsed in Russia, North Korea lost its main trade partner and economic hardship sent in. Their isolation from their neighbours and poor management by their central government has led to economic ruin and a famine reported to have claimed the lives of over 2 million North Korean citizens.

Kim Jong-il’s rule also been characterised by Stalinist totalitarianism. Rumours abound about state repression in ordinary North Koreans’ lives. Allegedly citizens are required to sing songs of praise for their leaders and homes come fitted with radios which broadcast state propaganda. Radios which not only cannot be turned off, but which it is illegal to tamper with.

Pursuit of nuclear weapons and missiles capable of reaching Japan and the United States has led to a breakdown in relations between North Korea and the rest of the international community. Despite this, Kim Jong-il made some efforts to repair damaged relationships, meeting the South Korean President in 2000 and taking meetings with Russian and American representatives. He also requested aid from the international community in dealing with the famine.

Those close to Kim Jong-il have described him as having a passion for Marxist-Leninism and a strict belief that North Korean society should follow this economic philosophy. Despite this, his personal life epitomises the worst excesses of capitalism. While he dined on fresh lobster and other exotic foods his citizens starved. While he owned private cars, planes and jets, the people of North Korea lacked essential services. While he enjoyed his collection of Hollywood films his government restricted all access to foreign media.

Kim Jong-il’s death can also be situated in the wider context of the end of Maoism and Marxist-Leninism, with private businesses bombing in China and their government moving ever closer to floating their currency on the international market. It also fits into the narrative of the end of authoritarian, centralised government, with 2011 seeing people all over the world rising up against their overbearing rulers. The age of big government might not be over, but the age of the all-encompassing government is.

The legacy of ruin and hardship left behind following the fall of the Titans of Communism is a reminder to those on the left that although our ideology should be informed by Marxism, we need to grow beyond the confines of this restrictive and incomplete philosophy. The left requires a new mode of thinking, focused on decentralised self-organising networks rather than the all-powerful state.

Kim Jong-il’s death leaves North Korea’s future in an uncertain state - even his son, Kim Jong-un’s succession is not certain. The world watches with bated breath to see how the famously unpredictable regime will respond. It is the hope of this blogger than the North Korean people will see an improvement in their political freedoms and material circumstances. Kim Jong-il has failed to deliver the abundance promised in theory by Marxist-Leninism and as a result is responsible for creating a society whose citizens are impoverished, hungry and repressed. Changing is sweeping across the world and we hope that in some way it can benefit the people of North Korea, who have suffered for so long at the hands of their supreme rulers.

Immigration and the flexibility of labour

There are few issues in politics that are as deeply dividing as immigration. Everyone holds an opinion on the topic, how much is appropriate, of what sort, from which country, etc. Immigration is blamed for many problems in society from crime to traffic congestion but has also advanced British art and engineering. A case in point, the Mini, that British icon of style, was created by Alec Issigonis, who was born in Smyrna (now Izmir in Turkey). Perceived failures of immigration policy can have dire consequences for a government; case in point is the hammering Gordon Brown received in the 2010 after a perceived rises in immigration. Anti-immigration outbursts can be equally as ruinous to a career, for example Maurice Glasman suffered a fall from grace after endorsing a halt on immigration.

As well as the economic implications, it is generally viewed that the problem with immigration is the divisions in society it causes can culminate in either acts of terrorism or violence directed at immigrants themselves. Many also argue that the economic impact of immigration is at the root of the social divisions it causes. In this article I hope to show that the social disorder caused by immigration is a response to market inefficiencies and not a problem with immigration itself. In essence it is weaknesses in our economy which make both immigrants and the indigenous population poor and angry.

The market based economy does not allocate resources to where they create the most social good. Some areas of society have an excess of economic resources and some have a great lack. This is partly because not all resources are perfectly mobile to where they are needed or to where they can create the greatest good. A clear example of this is housing which cannot be moved to take advantage of where there is a shortage. Without state intervention there is no way to correct the uneven distribution of quality housing. These market inefficiencies and misallocation of resources will always mean that some lack essential goods and desirable luxuries. Those who lack resent other social groups who have been allocated extra. This has driven many of the poor all over the world towards Socialism and other left wing movements. However this resentment is not always directed at the cause of poverty (flaws in the market based system) but at those who it is perceived possess more and have not worked hard to earn it.

Amongst the poor white population this resentment can be directed towards immigrants when individuals feel that they have been allocated a larger slice of society’s scarce resources simply because they belong to a different social group. The same can be said amongst immigrants who can become resentful of an indigenous population who they feel find it easier to acquire essential goods and luxury items simply due to being born in a country. On both sides of the divide people with a specific agenda can harness the anger at society’s uneven distribution of resources to push the disaffected towards either terrorism or hate crimes.

This fact applies to both sides. The EDL and Muslims Against the Crusade are images of each other. Young, poor and angry. Politicians and community leaders are unwilling to tackle this issue partly due to the difficulties with effecting real change but also because they risk losing the support those who the current distribution of resources benefits. Following being let down by community leaders and politicians, the disenfranchised taking matters into their own hands. These tensions which occasionally spill over to acts of violence are caused by an uneven distribution of resources and a lack of political engagement with this issue which create poverty and fosters feelings of alienation.

If the government were to intervene in the free market to correct the uneven distribution of society’s scare resources, then there would be less poverty and less anger to exploit.
Those who speak out against immigration often cite the effect it has on the wages of indigenous people, especially those in the lowest paid manual and unskilled jobs. However this effect can also be explained by inefficiencies in the labour market. The immigration can lead to an oversupply of labour especially in these low paid industries. A rise in supply of labour reduces the unit cost of labour (in this case wages) as the jobless are forced to look for a wage lower than their desired wage to remain competitive in the more crowded labour market. When firms see that the labour supply is increasing they desire to reduce unit costs of production and thus lower the wage they are offering to new employees. They can expect to find applicants for the role as an increase in labour supply has caused a job shortage.

Wages fall as a result of immigration not because of the actions of immigrants but because in an unregulated labour market increased supply will reduce wages mainly because firms seek to reduce costs of production. Like housing labour is not perfectly mobile. People are tied to a certain area by family commitments or the cost of moving which prevents labour from being reallocated from areas of surplus to areas of shortage. Similar labour markets where there is a short of supply often have barriers prevent entry to these markets by immigrants and the poor - barriers such as expensive qualifications or many years of experience.

This effect on wages can also be corrected by government intervention in the labour market. Access to education can break down the entry barriers to certain labour markets, especially training for the long term unemployed. Also the introduction of a living wage would ensure that even when there is excess supply firms are not able to drive down the wage price to point where it puts people into poverty.

Society’s scares resources are allocated in large quantities to a small section of the population. This does not just apply to wealth and material goods but also access to important services like education and health care. This divide is growing wider and those who which society has allocated less resources are growing poorer and angrier. This anger is often directed at the wrong parties where it is the system by which resources are allocated at this at fault.

The government needs to do more to address labour market inefficiencies to tackle the social problems caused by immigration. One possibility is to consider a return to the objective of full employment and guarantee a living wage. Both of which will involve government legislating the labour market but will result in higher wages for immigrants and the indigenous alike.

Until these inefficiencies are tackled, immigration will still be an issue dividing both society and political debates. This divide will always be to the loss of the poorest members of society both immigrants and indigenous alike.

Is the IoD putting business before growth?

In the year and half since the coalition government came to power economic growth has been lacklustre at best. In the second quarter of this year the Bank of England and the Office of National Statistics put the UK economic growth figure at 0.2%. If the economy does not improve the government will face dire political consequences at the next election. In addition they risk not meeting their budget deficit targets due to the lack of growth in tax revenue associated with periods of economic stagnation.

The Institute of Directors (IoD), a professional members body made up of the directors many private businesses, has suggested several reforms to government policy that they believe will boost growth. I believe that economic progress is not at the heart of these proposals but making conditions easier is for private business is. These changes are steeped in the ideology that if markets are deregulated and taxes reduced then businesses will flourish and the economy will grow.

I could write an article on the motivation and the advantages or disadvantages of each of their proposals, but instead I will summaries and quickly evaluate each below.

Cutting corporation tax to 15% by 2020

This assumes private business is being suffocated under oppressively high corporate tax rates which it clear it is not. It also ignores the issue of where in their tight budget the government would find the money for such a give-away.

Improve labour market flexibility

This basically breaks down into making it easier for firms to hire employees (reduction in security checks and equal opportunities quotas) and to fire employees. In times of high unemployment labour markets become more flexible as jobs become scarcer. There is a limit to how flexible labour can be as there are ultimate restrictions of people’s job search such as being tied to a geographical area by having a family.

Ring-fence transport, energy and IT and telecoms spending

This does make sense, cutting government spending is having a negative effect on growth, especially during a time when business are being cautious and not investing. I have said before that infrastructure investment will suffer due to the short-termism of the government’s market reforms.

Ensuring that energy policy "does not sacrifice UK competitiveness for green credentials

The government commitment to investment in Green energy is one of their better ideas. It creates job and develops the infrastructure of the country. It could potentially lead to a whole new industry which we will be an international leader in. Also having “green credentials” attracts much needed foreign investment to the UK.

Expand free school provision with profit incentives

The profit incentive will not make our public services more efficient. See my previous article on this topic here.

End the £100,000 personal allowance taxation "anomaly"

This is the idea that those earning £100,000 a year are paying more tax then those earning £150,000. This is cover for cutting taxes on the wealth which is deeply unfair during a time where government cuts are hitting the poor.

Intensify competition policy, both domestically and within the European Union

Intensifying competition is synonym for privatisation. As I said have before, it is the belief that the profit maximising incentive can be used to harness the power of human selfishness to deliver efficacy gains which can create new inefficiencies through perverse incentives. Also some of the IoD’s members represent monopoly or oligopoly industries and if they want to increase competition in the economy they should consider breaking up the strangle hold large companies have on certain industries.

Carry out radical civil service reforms to promote deregulation

This is based on the myth that there are unrealised business opportunities that are blocked by cumbersome legislation. A lot restrictions placed on business can be for good reason, such as to protect public safety or prevent a single firm from becoming disproportionately powerful. Deregulation will only encourage firms that cut corners and will spur a ‘race to the bottom’. There can be net benefits for the economy by working within the existing legislative framework.

Reduce political influence over infrastructure planning

More deregulation. More privatisation. One would think that there had never been an economic boom in the past as private business is clearly wilting under oppressive government over-regulation.

Reduce public spending to 35% of GDP by 2020

This also means create business opportunities by cutting government services. If public spending falls then that means that some services will have to move to the private sector. Creating opportunities for businesses to deliver service is only one of the many roles of government. More important roles are providing essential services to the public and ensuring there is an eco-system that encourages economic growth. Cutting spending on the economy and raising unemployment does not create confidence in private business and can lead to a stifling of investment.

Repatriate key employer power rules from the EU

This is another by word for making labour markets more flexible which is also known as making jobs less secure and repealing employment rights.

It will come as no surprise that the IoD has also called for the scrapping the top 50% tax rate on income. This is itself a further example of the neo-liberal political agenda being pursued by the IoD above the needs of the economy. It is also worthy of note that a reduction in taxation will cause the budget deficit to rise.

Privatisation may seem like a good way to boost the economy in short term but in the long term it can lead to gaps in services which used to be filled by the government but are now empty as no firm can make a profit in these areas or delivering these services.

Degradation can be dangerous in certain industries where government oversight is seen as in the public interest. For example, in planning where rushing the approval of new construction projects can lead to unsafe buildings or projects being placed in the wrong location.

These changes are ideologically and not economically driven. They have the interests of the IoD’s members at their heart, i.e. directors of (mostly larger) private businesses, and not the health of the economy overall. The government would do well to avoid pandering to invested interests when economic stability is at stake.

Occupy the Economy

Much has been written recently about the rise of a new protest movement. A movement that occupies commercial space to protest against the global capitalist system which they believe to be steeped in inequality. They claim to represent the 99% of society that have suffered from the credit crunch, high unemployment, low growth rate and the government's austerity program. In New York this has taken the form of Occupy Wall Street where a camp of protesters has taken up residence in Liberty Plaza. Occupy Wall Street itself takes its inspiration from the Egyptian protesters whose occupation Tahir Square in Cairo was instrumental in the downfall of Hosni Mubarak earlier this year. In London a similar demonstration was planned to occupy Paternoster Square outside the London Stock Exchange. Upon finding that this square had been closed by the police, they instead have set up camp in the adjacent area outside St Paul's Cathedral.

These occupy movements are different from previous anti-capitalist protests in that they lack a central leadership, a core demographic of members and clear stated goals or grievances. They use a consensus decision making model to plan action across the myriad of different groups which have joined the protest. In many ways the Occupy Movement is The Culture of Resistance, although they do not represent all of the Culture which is an even more diverse anti-establishment group. But the Occupy Movement represents a subset of the Culture of Resistance that has mobiliaed to take direct action. The Occupy Movement is an expression of dissatisfaction with the current capitalist hegemony. It is not exactly a defined political movement in itself as it lacks set goals and memberships, which is also one of the defining features of the Culture of Resistance.

Technology has allowed these decentralised protests to take place. Social networks such as Twitter and instant messaging programs such as BBM have allowed the disaffected to communicate with each other and organise a protest without the need for a central authority. The new technology has allowed those looking to start a protest to connect with those who are feeling alienated by the current political and economic system.

Expressions of alienation and dissatisfaction via online social-networks have culminated to create an Ecosystem of Discontent within the social network. Heightened chatter in the Ecosystem of Discontent creates the feeling that the physical space is safe for direct action. In other words the more people discuss the Occupy Movement on a social network, and how alienated people are by mainstream politics, the more appealing the occupation itself becomes to members of the Culture of Resistance. The ecosystem just needs a single event focused around a specific action or group to begin the chatter. Unlike in the past, the vanguard that begin the chatter and created (sometimes without intention) the ecosystem are not necessarily the ones who shape its development into direct action. Any node in the ecosystem can influence its development and those involved in its creation frequently have nothing to do with the point when the ecosystem achieves the critical mass required to spill into a real world protest. It is the Ecosystem of Discontent and the connections to strangers possible through social networking that allow the idea of the protest to spread beyond the group who initially conceived it to encompass the huge variety of seemingly unconnected people found in the Occupy Movement.

The existence of the Occupy Movement is evidence of the growing mobilisation of the Culture of Resistance and growing dissatisfaction with the status quo. Unemployment, poverty and poor growth is drawing more people into the Culture of Resistance and technology is allowing them to become involved with ecosystems facilitating direct action.

The next question is, what can economists do about the situation to improve people's material circumstances and halt the growing tide of alienation. The answer is not the obvious one of getting the economy growing again as fast as possible, as the dissatisfaction currently felt has its roots in the recent decades of economic prosperity.

What economists can do to help is reexamine their thinking. The Occupy Movement is further evidence that current neo-liberal consensus is not working. Previously we believed that the best course of action was to grow the economy as a whole, and through the infamous Trickle Down Effect all sections of society will benefit from increased wealth. Although during the boom all sections of society where wealthier than they had been the past this did not make everyone content. Inequality between the rich and the poor has grown during the Thatcher, Major, Blair and Brown years. The divide between the rich and poor is greater now than it was in the late 1970s. Class mobility has decreased over the same period. If you are born poor now you are more likely to die poor than if you were born in the years following the Second World War. This situation has been created by our neo-liberal economic policy and huge sections of society are clearly not happy about this.

Many people in the Occupy Movement are middle class. The people who stand to benefit from the neo-liberal agenda but have grave concerns about the kind of society that we are becoming by following this agenda. To continue down the route we have been following is for the gap between the rich and poor to grow wider and wealth to remain trapped amongst a privileged few.

We need a new way of thinking about our economy which must involve a revival of the economics of equality and full employment. We need to do away with the attitude that by making it easier for private business we are benefiting all of society. Other new as yet unknown ways of thinking about economics will also be needed but I feel that certainly a good place to start is look at a commitment to greater wealth equality. The outdated neo-liberal view of economics is not working and people know it. Inequality will not stand and the best thing we as economists can do is find a way to more evenly allocate society’s scares resources.

Steve Jobs: An obituary

"It was sponsored by that guy from Apple computers." - Homer Simpson, 1996.

Today the word of Information Technology mourns the passing of a giant in the field, Steve Jobs. The Apple logo, and technical innovations such as the iPod and Macs, have become synonymous with the information age and the very idea of western capitalism. No one more than Jobs incorporated the ideal of the capitalist system. Adopted by a working class family, Jobs grew up to co-found the world's largest technology firm and amass a personal net worth of $8.3bn. He also embodied a middle-class aspiration of incorporating creativity and design into his firm's USP. Apple's innovations were as much artistic and design triumphs as they were technical and financial successes.

It is difficult to overstate the influence Jobs has had. His early Macs where the first computers to use a mouse and the Graphical User Interface (GUI), which allowed them to move away from the previous Command Line Interface and bring personal computing to the less technically minded. It is very telling that Apple's OS operating system has the most logical names for features (Finder and Trash versus Explorer and Recycle Bin); this is because they were the first into this brave new territory and were able to coin the names. As well as defining the personal computer, his firm still sets the benchmark in modern computing. All modern smart phones are modelled heavily on the original iPhone design, and the iPod is the baseline by which all personal MP3 players are measured.

Jobs' financial successes are also many. When he returned to Apple in 1997, he took the firm from being literally a joke (see the 1996 Simpsons episode Homerpalooza for proof how much of a joke Apple was before Job's return), to eclipse the behemoths Microsoft and IBM and become the world's largest technology company, with a market capitalisation of over $350bn. More than any other CEO, Jobs led from the front, his personality being inseparable from the brand and his trademark keynote addresses a defining feature of their new product launches. Apple more than any other technology company has fans as opposed to customers, and devotees would queue for hours to see the man in person and catch a glimpse of the latest products.

Tributes to Steve Jobs outside the Apple Store on Regents Street, London

Under Job's leadership Apple have become a powerhouse of creative and technical accomplishments. The brand has a reputation for being original and for being the best choice for digital artists, graphic designers, and many others in fields where computing and creativity go hand in hand. Always with a keen eye for good business ventures, they have sponsored smaller firms to great technical innovations. It is telling that it was Jobs who first saw the possibilities that Pixar offered when he bought the company in 1986. It is difficult to say which direction the company will move in now, but it is clear that the new CEO, Tim Cook, has some very large shoes to fill.

I started by saving that Steve Jobs epitomised a western capitalist ideal and I will conclude by returning to this point. The foundation stone of western capitalist society is the belief that personal individualism can be expressed through mass produced consumer products. Apple is the pinnacle of this, as being an apple customer makes a statement about you as a person. No other innovator or company has been the alternative, rebel in the market (against the mainstream Microsoft) whilst being the larger, dominant, top-dog firm. The mark Steve Jobs left behind will be felt by his firm and his fans, and his accomplishments will belong to the ages. Truly today we have lost a great innovator and businessman.

Do not let John Nash ruin the government

The current government is pursuing a program of public sector reforms more aggressively than any other previous administration. This is more than an effort to balance the budget but is an ideological drive to put the mantra of choice at the heart of state provided services. This notion of choice is borrowed from the market meaning of the word as in competitions between different providers offering a range of services and products. In the market, the spending choice of the consumer is the feedback mechanism which determines which products remain on the market and which are withdrawn. When the government says choice what they actually mean is competition between providers with public choice acting as the feedback mechanise. Through their reforms the government intend to create a market for public services.

For those on the right these reforms represent an opportunity to inject market efficiencies into the ailing public infrastructure. For those on the left, this bill is seen as an attempt to privatise by stealth publicly owned industry.

The changes being put forward by the coalition government will allow private companies, charities and groups of private individuals to bid to run local services. Charities or parent groups can bid to run schools. Patient groups can bid to run hospitals. GPs will be allowed to choose which providers they purchase health care from. All of this is driven by the view that the competition created by a choice will make public spending more efficient. What I fear the most is that the coalition government’s plans will have the opposite result from what they intend, that their reforms will lead to a much more inefficient public sector.

The idea of introducing market based competition to the public sector is not new. It first emerged in the late 1970s as John Forbes Nash, Jr.’s economic theory became widely accepted. Nash posseted that individual’s selfishness will always undermine the success of government programs. He believed that competition for resources between departments and programs as well as competition between individuals for promotions would ultimately sabotage the best interests of government. The TV show Yes Minister is Nash propaganda. The struggle between Sir Humphrey and Jim Hacker usually ends up derailing both of their schemes.

Margret Thatcher was a big believer in both the works of John Nash and Yes Minister and dismantled the old consensus of government work as public service which Nash believed was impossible. In its place she and those who followed her have put the mantra of free market competition as the optimum method to distributed resources.

This legacy was continued by the following Labour government and now redoubled under the current coalition. The logic of Cameron is that the competition in state services will use the profit maximising incentive to harness the power of human selfishness to create the most efficient public sector. As in the private sector, costs to consumers will be driven down (in other words taxes will be lower) and output will be raised in the form waiting lists disappearing.

Rather than apply market efficiencies to public services, these reforms will fall victim to the very pitfalls Nash railed against. The powers given over the external bodies which will run our public services will effectively make them the new management class of the public sector. Instead of using their new powers to drive down costs, a perverse incentive to raise costs will be created by management’s selfish drive to maximise their wages and bonuses.

We have seen this demonstrated during the banking crisis. Unbridled self-interest was let loose on our finical markets in the belief that this will build a robust finical system through optimising the allocation of funds to where they were most effective. The motivation for optimum fund allocation was drawn from the monetary incentive offered to investment managers. However, the selfish motivation for personal wealth failed to create the most efficient banking system and ultimately led to a deeply flawed system vulnerable to collapse.

The government’s reforms will also cause public sector efficiency to suffer by reducing the quality of services provided to the public. This is because most of these external bodies outside government that will be competing to run our services will either be or function as private companies and will follow a profit maximising incentive. The incentive to increase profits will cause the external bodies to drive down the cost of delivery public services as the government has planned but this will not always be through a more efficient allocation of resources. In some cases this cost savings will take the form of reducing the quality of services delivered to the public. This behaviour will be reinforced by the profit maximising incentive of because the profits for these external bodies will be the remainder left over from our taxes after the external body has delivered the service. A good example of this process is the collapse in the nutritional value of school meals since the service was privatised.

Economic efficiency is not always a job done at the lowest cost by cutting as many corners as possible. Sometimes it costs more for a job to be done more effectively. A good demonstration of this is investment in infrastructure and training staff which can be expensive and drive up the costs of delivering a service; however, there are net gains for the whole economy derived from improved infrastructure and having a better trained workforce. Long-term investments such as these will suffer under a system drive by a short-term profit maximising incentive.

Much has been written about the perils of privatising public services at the lowest cost per unit. I will not insult the writers who can explain these problems much more eloquently than I by paraphrasing them here. I seek simply to debunk the idea that enlightened self-interest will lead to the most efficient economic system.

My message to MPs is not to let John Nash and selfishness run our public services. Headlines of waiting lists and rising costs might prompt radical change but once we open up a closed system to market competition it will be all but impossible to restore the values of government work as public service. Selfishness will not optimise state provided services but will instead provide new inefficiencies. We should think gravely about the consequences of opening the door to competition in the public sector. These reforms will offer the public a choice between a series of cost-cutting, bloated over paid private organisations. This is not the road to economic efficiency in public services.

Retrospective on the Riots

Since the London riots began in Tottenham on Saturday the 6th a clear distinction has emerged between a legitimate protest – a common expression of anger at poverty and political alienation – and the actions of a criminal element who took advantage of the chaos to enrichment themselves. I am concerned that amongst all the head shaking and tut-tutting that has been going on in the media a series of changes are being suggested that would not only make our society more restrictive but also risk making any future riots much worse.

The nation is collectively asking its police force and elected officials “what went wrong and what can we learn to prevent this from happening again?” Some feel that it is simply a lack of visible policing brought about by government cuts or an overreliance on CCTV; ten thousand extra police officers where on the streets of London on night of Tuesday the 9th and their presence was easily noticed. This might have been the main factor in putting an end to the escalation of the violence, but if it was, these numbers are clearly unsustainable and place huge demands on police forces outside London. There is a concern that changes to police practice are necessary to prevent rioting flaring up again. From what I have read in the news and on twitter and garnered from public opinion through conversations with friends and colleagues, I believe there are serious flaws in the changes the public is demanding and the logic that has been used to arrive at these conclusions.

A recent You Gov poll revealed some frightening statistics about the public’s support for change to police procedure. 90% of those polled supported the use of water cannons against rioters, 84% thought the use of mounted police would be appropriate, 82% thought a curfews should be imposed, 78% thought tear gas should be used, 77% approved of the army being sent in, 72% thought the police should be armed with tasers and 65% supported the use of plastic bullets. The most frightening statistics was the revelation that 33% of those polled support use of live ammunition against rioters. This means that one third of the public support the execution of at least some of those involved in the disturbance, as in such a situation deaths would be inevitable. As if another Bloody Sunday is what is needed to enforce the law, completely ignoring the fact that violent military state repression usually leads to extreme disenchanment with the government and increasingly violent uprisings.

Many feel that the lack of consequences for the initial acts of rioting and looting is what caused it to spread. I have heard a lot of endorsements for giving police license to ‘crack some heads’, and all that was needed to restore order was for the authorities to turn a blind eye to police brutality. At the root of this is the simplistic belief of a dividing line between right and wrong and that if you receive a beating from a police officer you must have done something to deserve it. The same applies to those who support the use of water cannons. There is a black and white view that if someone is hurt by a water cannon (even a bystander) that they must be a dangerous criminal. Aside from the implications for innocent people in the wrong place at the wrong time, beating down the angry, alienated and disaffected members of society will only foster greater resentment, perpetuate marginalisation and encourage those effected to rise up stronger and with more violence.

I take serious issue with the belief that the problem with the police in this country is that they are not violent enough. The notion that a system of fear, beatings, and aggressive repression is the best way to keep the populace in line is backed up by the immortal phrase ‘if you have done nothing wrong then you have nothing to fear,’ which only translates to ‘if you are white and middle class you have nothing to fear’. This view goes hand-in-hand with the wide spread but unspoken opinion that our society is not cruel enough to the poor, and that if we were stricter and more repressive then rioting would be less likely. The logic behind this is clearly flawed.

Last year’s G20 protests are frequently brought up this context, where a man died through police action at a legitimate protest – a man who was not even part of the protest but a passer-by. Apologists for police brutality seem to claim that it was wrong and detrimental to public order to investigate the cause of this death. Another pillar to this argument is the view that society has given too many rights to criminals, which has crippled police action. In the context of recent events, where the police shot and killed a man who it has emerged did not fire at them, this seems unlikely. Also if it is true that we are too liberal in giving away rights then this casts serious ideological doubt on the variety of western democracy we are attempting to export to authoritarian countries like China and North Korea. Proponents of heavy handed policing inadvertently relay express praise for the way the Chinese security services dealt with the Tiananmen Square Massacre. I personally have taken immense pride that our police force exercises much more restraint than police forces in authoritarian countries, and indeed those in other western countries like Greece or America where violent uprisings are much more common.

We need to learn important lessons from this but we must not lose what make us one of the freest and most peaceful societies on earth, with a police force respected throughout the world for their calm and restraint. It is these characteristics which have kept our cities relatively disturbance-free until recently and have prevented greater loss of life. In closing I would like to add a quick note to those who deny that there are larger forces at work in this issue and believe there is nothing more to this than opportunistic criminality. To suggest that there is not a socio-economic root to the riots is to suggest something very dark about the nature of humanity and to imply that for a few days we were suffering from a mass outbreak of sociopathy. This is also is a spurious claim.

Culture of Resistance

There is a long-standing trend across society of people feeling alienated from the political establishment. This is not a movement with ideology or leaders behind it but more a broad feeling of disaffection felt by many. Individuals have sought to express this through music, film and political action drawing many who feel the same towards them but without forming a tangible movement. In recent months in the UK this has grown more apparent as opposition to the Tory government and their program of austerity has grown. I suggest the coining of a new phrase to describe this movement of the dissatisfied and how the feeling is expressed as the culture of resistance.

The culture of resistance is a general anti-establishment view point. Best described by a friend of mine as the 'fuck the police' mentality. It incorporates those against the established ideology of neoliberal free market capitalism but, in its actuality, is a broader dissatisfaction with the status quo and the dominant political philosophy. It covers a spectrum of people from those who wear Che Guevara hoodies to squat dwelling anarchists. It can be manifested in those who subscribe to specific anti-establishment ideologies such as socialism and those who take direct action against the establishment in the form of protests. However, it can also be seen in those who feel alienated from the main political discourse and social norms. The culture of resistance is not specifically opposed to or against anything that can be easily defined. That is a characteristic of a more defined movement with influential figures and a more defined ideology. The culture of resistance is more of general expression of dissatisfaction felt by many who do not fit within the establishment and are disenfranchised by this.

In one aspect it can be summed up in the general anti-establishment vibes given off by bands like Kasabian but it encompasses such diverse songs as the anger of Anti-Flag’s Die For the Government to Tracy Chapman’s more subtle Talking About a Revolution. It encompasses a range of films, from James Dean's non-specific rebellion in Rebel Without A Cause to the anti-big business rhetoric of Michael Moore’s documentaries. From the Ragged Trousered Philanthropists to Iain Bank’s Complicity. It covers those who feel disenfranchised from the political and social establishment by their gender, sexuality, race, poverty or sub-culture.

For those of us on the left to be a more effective political force we need find a commonality in these disaffected individuals covered by the broad term of the culture of resistance. We need to seek out the root causes of political alienation and social disaffection and mobilise people against their oppressors. I am fully aware of many on the left who feel alienated and disaffected by lack of a strong left-wing voice in mainstream politics calling for progressive change. Many also feel dissatisfied that Labour frequently fails to be this progressive voice. Individuals form isolated causes or individuals take direct action as they feel disconnected from a larger political movement. This in essence is the culture of resistance.

It is job of those on the left to form alliances between dispirited groups and people who fall under the culture of resistance. Many of the root causes of political alienation and social disaffection are conflicting problems. Power structures within the culture of resistance make this difficult, as is forming connections within such a diverse group of people. However, forming alliances between dispirited groups has always been one of the great strengths of the right. Consider the many differences between neoliberal, free-market corporate conservatives and the faith, family and flag social conservatives who sit together (not always happily) on the benches of Republican Party. In the British Tory party we see a similar uneasy alliance between the anti-immigration lobby and supporters of the interests of large companies who exploit the cheap labour migration brings. The right counts forming political alliances as one of its strength and so too should we on the left.

There are recent examples of direct action taken by large groups of members of the culture of resistance against their political oppressors. The main instance of this is students demonstrating against tuition fee rises. A diverse group students of different ideologies and different social backgrounds united by their opposition to a single issue and their general disenfranchisement with the political establishment.

The student tuition fees protests are a clear example of the increasing degree to which young people are disillusioned with political establishment. The protests of thousands of young members of the culture of resistance in the lead up to the Iraqi war were largely ignored by mainstream politicians and thus alienation of those outside the main political discourse is continued. In recent student protests the culture of resistance were driven to property damage and occupation in response to the feeling that the voices had been ignored or silenced before. Through the media branding them as violent trouble makers, the alienation and disaffection of the culture of resistance is perpetuated.

In the Arab world we have seen a string of uprising by the political oppressed. Again a broad cross section of society has been united in a common movement of the politically alienated and the socially disaffected against their oppressors. In Egypt, a country fraught with religion divisions, Christians and Muslims were brought together against the dictatorial establishment. This should be an example to those who wish to effect social change that through a common culture of resistance very divergent groups can be brought together and ultimately topple their common oppressors.

Very recently in Tottenham, north east London the poor and disaffected lashed out at an establishment which they felt was repressing the community. This is an example of an entire community and culture falling under the label of the culture of resistance due to the disenfranchisement of poverty, the alienation of the lack of having adequate political influence to effect necessary local development and perceived over policing. The culture of resistance does not only cover isolated individuals but can incorporate entire social groups or movements.

The culture of resistance has only grown larger and more pronounced as time has gone by and more people felt alienated from mainstream politics by the dominant ideology. We have seen that there is a great power in this disenfranchisement once mobilised. Those of us on the left need to work on building bridges that unite the disaffected in a common movement if we are to effect serious and lasting social change.

Our House

In the late 1940s, my grandparents moved into a brand new council house in Birmingham. I remember visiting it as a kid in the ‘eighties and Sheldon felt like a pretty run down area by then, but just after the war it was a desirable area. Semi detached and modern, with a garden at the back (albeit still with an outdoor toilet) it was a far cry from what working class people had experienced before the war – not enough housing, exploitative private landlords, and buildings rotting and crumbling even before the efforts of the Luftwaffe. With a Labour government in power, promising a new era of ‘cradle to the grave’ collectivism amid the rubble of the war, housing was firmly on the agenda.

The reason I’m telling you all this is because housing is as much a political issue today as it was when Attlee was prime minister. A serious lack of affordable housing for first time buyers, combined with the post-banking crisis difficulty in obtaining mortgages, means a generation of young people will find it near impossible to get on the property ladder. Meanwhile, councils and housing associations have been building little in the way of social housing, and the age old problems of ‘sink’ estates and poor quality rented accommodation are still very much with us. Politicians know it’s getting worse – the waiting list for council housing is 12% longer now than in the previous quarter. But how did we get into this mess, and what should we do about it?

The Attlee government worked quickly to build new, good quality council houses – the ‘homes fit for heroes’ promised, but never delivered, after the previous world war. The incoming Tory government of 1951 built even more. But this was in a very different context than today – the 1950s and 60s were the post war boom years, supported by full employment, and the role of the state could not be more different to today. It didn’t seem unusual to anyone, except a handful of marginalised right-wingers, that the state had a role in providing most of the basic provisions of life for the majority of people.

Then, somewhere along the line, it all went wrong. In the ‘60s, government strategy moved towards creating new estates on the edge of cities, using new-fangled ‘system building’ to create vast, Modernist tower blocks and flats. This was in keeping with the optimistic, forward looking spirit of the era – remember, this was the age of Wilson’s ‘white heat of technology’, when it was widely assumed that futuristic motorways would solve all our transport problems and new nuclear power plants would provide electricity too cheap to meter. Plus, system-building was cheap, and a booming population needed ever more homes. This disaster is well documented, but in brief, it condemned millions of people to being trapped in Eastern Block-like ‘slums in the sky’, riddled with damp, and with seemingly designed-in havens for crime in the estates’ dark corners and underpasses. With insufficient services on the estates, many residents felt isolated from the rest of society.

It didn’t help that it soon became evident that they were shoddily built, culminating in 1968 with the collapse of one tower block, Ronan Point in London, when it was nearly new. Neither did it help that corruption between developers and local councils (notably in Newcastle) gave the impression that local authorities had sold council house dwellers down the river.

All of these things conspired to turn public opinion against the State provision of housing, and the new political establishment were able to seize on this. When, in 1980, the Thatcher government broke with post-war consensus to allow council tenants to buy their council houses at a large discount, the pent-up desire for ownership was clearly in evidence. Plenty of working class people did indeed share Thatcher’s dream of a ‘property owning democracy’. Labour only objected to this initially – being against what was obviously the aspiration of many working people would have been wrong.

However, as we are now painfully aware, the problem with right-to-buy was that councils were left with the worst housing stock that no-one wanted to buy – generally the ‘60s era flats, creating sink estates where councils were forced to house addicts, the mentally ill and ‘problem families’ in the same areas. Once they got into power, rather than building new houses to replace the ones sold by the Tories, New Labour further reduced the ability of councils to do anything about the problem by transferring the responsibility for housing to unaccountable Housing Associations.

In Lynsey Hanley’s excellent book ‘Estates’ she accurately points out that the post war dream of the Attlee government was bound to run into trouble when it was commuted from ‘a council house for everyone that wants one’ to ‘a council flat in a high rise for anyone who can’t afford anything better’. The latter is the notion of council housing that I was aware of, growing up in the Thatcher era. There was no such stigma to being in a council house when my grandparents moved into that house in Sheldon, 60 years ago.

Moving back to the mass provision of housing by the State is unlikely in this day and age – society has moved on from that, irreversibly. Over 60% of homes are now owner-occupied. But that doesn’t justify Thatcherite ‘I’m alright Jack’ attitudes – the government should still have the same moral obligation to provide for people that it did in the Attlee era. Serious action needs to be taken to ensure that today’s young people have places to move into that are good quality and affordable, whether that’s through helping people get mortgages, or by providing more social housing. The free market won’t do it for us – just like in the 1940s, the government is going to have to take responsibility for the task at hand.

Of course, brown-field sites should be used first, but if we have to build on new land – so be it. It’s all very well for the baby-boomers to bleat about the aesthetics of new developments – they’re the ones who had no problem buying houses cheap and then watching as their values skyrocketed. We mustn’t repeat the mistakes of the 1960s and 70s, where people were left isolated from jobs, shops and transport. We must recognise that demographics have changed, and provide not just family homes but also homes for single people and childless couples. But more than anything, we just need to get building. Britain has built its way out of recession at least once before, and, maybe, we can do it again.

Blogging while London burns

As I write this Londoners are knuckling under for a third night of rioting and looting. The full details of the weekend's disturbances are already plastered across the news and I won’t waste time repeating them here. I will add that as a resident of Tottenham living a few hundred yards from where a police car was burnt and a supporter of recent student demonstrations, rioting against the oppressive establishment is a lot less romantic when it is going on in your postcode.

To be frank it was a frightening experience. I spent the majority of Saturday night endlessly refreshing the #tottenham hash tag on twitter to see how close the violence was to my house. Police helicopters circled the neighbourhood constantly and I become convinced that every creak in the house was the beginning of a home invasion.

Now with a little perspective and calm I can see that there were two main issues at play on Saturday night in northeast London; a legitimate protest on the part of an angry community who felt downtrodden and persecuted, and the beginning of a citywide crime wave that the police failed to deter, contain or even hamper.

The moment Saturday's events boiled over is alleged to have been when a sixteen year old girl, at a protest outside Tottenham High Road police station, was hit by a police officer. This spilled over into the destruction of property and widespread looting. The scale and ferocity of the events hint at the deep social tension associated with the high level of poverty in the area. The residents of Tottenham, particular the Afro-Caribbean community feel disenfranchised by society, their political voice muzzled and victimised by the police, especially through Operation Trident's attempts to tackle gun crime in the area. Many residents, particularly the young and unemployed, feel alienated from society and that the police have used stop and search powers excessively against them.

People in neighbouring communities (particularly the more affluent Crouch End, Islington, and Enfield areas) are concerned by how the police allowed a peaceful protest to get so dramatically out of hand. They are also concerned as to how so many police resources where consumed in a single area that looting went on unchecked half a mile away in the Tottenham Hale retail park. Undeniable the police handed the situation badly but I do have to add on a personal level that I am extremely grateful the riot and especially the burning of buildings was kept away from my street. I am grateful that the police kept me safe but also angry that so much damage to property and persons took place. Clearly mistakes where made.

The looting that has taken place is more than the “opportunistic criminality” that police authorities have dubbed it. Looting is an expression of anger at poverty. Personally I would love a new Mac Book but comfortable in my middle-class status, I would not steal one regardless of how easily I thought it was to get away with. I cannot understand what is like to spend your life seeing others with games consoles, computers and new trainers yet never being able to afford them myself. In the words of Alexander Solzhenitsyn “can a man who is warm understand one who is freezing?”

Those who have cannot understand the desires of those who have not; it is quit simply not a problem I have ever had to deal with. Also of note is the fact that no bookshops were targeted. This is not a comment on the intelligence of the people of Tottenham but more a reflection of the desires of the people who live there to possess the same consumer goods as their neighbours in Highgate and Crouch End. It must be very difficult for the poor in London to be pressed up against their rich neighbours who have so much and be constantly reminded of what they lack. Consumer status symbols are an inherent part of our lives and lacking these symbols places you at great social disadvantage. I can understand why people would take advantage of the general lawlessness to attain what they cannot through conventional means.

Personally I cannot support rioting and looting as a form of protest, mainly because the general public (rightly or wrongly) will see injured police officers and burnt out buildings and these powerful images will overshadow any points about over policing and poverty in the area. David Cameron and Boris Johnson would do well to spend what available money they have tackling the massive inequalities that exist between neighbouring areas in London. Tottenham is badly in need of some urban development.

What is also needed is a discussion of the role the police had to play in the riots. Many questions will be asked about how the police allowed a legitimate peaceful protest to go so horribly awry. Should there be a review of the police’s use of deadly force? Are current police tactics too heavy handed? Should the police be given discretionary powers to prematurely arrest rioters? These are questions for when the riots have died down. One thing is for certain, these riots are not over yet and that real social change is necessary to deal with the deep problems caused by such poverty adjacent to such wealth.

We need to talk about gas

Gas is not a popular topic of conversation. When it comes to energy, most businesses or politicians prefer to talk about their plans to invest in green energy. This is usually steeped in the familiar rhetoric of reducing our carbon footprint or severing our dependency on the increasingly unstable Persian Gulf. We are familiar with the state of the public debate on energy and most people are tired of oxymorons about clean coal or the whining of NIMBYs about how unsightly wind farms are. However, I feel we need to talk more about gas.

Whether we like it or not we are a country addicted to gas. Most homes in this country use gas in their boilers and gas expenditure makes up a significant proportion of many peoples' household budget. We are so used to stumbling into the kitchen, bleary-eyed each morning, turning on the hob and pressing the ignition button to boil an egg that we scarcely give a second thought about where gas comes from and who’s hands we putting our hard earned wages into.

Like any other dwindling resource, the price of natural gas has risen exponentially as our demand has blossomed and deposits have been drained. The production and export of natural gas almost entirely props up the bank accounts of some of the world’s richest countries and people. Without the wealth stream generated by the West’s huge thirst for gas, nations like Qatar would simply be another Middle Eastern Emirate with an overbearing monarchy and alienated citizens.

The same is true in this country. The former state owned British Gas still controls a huge section of the British energy market and millions of people rely on the company to heat their homes in winter and provide their hot water. Each year British Gas and the other suppliers raise the cost to the consumer and then post record profits a few months later. This is partly due to rising costs from the firm’s suppliers but after a few years of price rises followed by increased profits one cannot help but draw conclusions.

Recently, British Gas announced that they will be raising their domestic gas prices by 18% in August and the other home suppliers are expected to follow with similar price hikes. This is alarming in the context of the BBC reporting that the division of British Gas which oversees domestic supply posted £740m in profit last year and, that for the same period, a 22% rise in fuel poverty was recorded.

Fuel poverty is when 10% or more of your budget is spent on heating your home. This means that a rise in gas prices whilst average income and other expenditure remains constant will cause the number of households who are fuel poor to rise. At Christmas this year over 4 million homes in the UK will be classed as fuel poor with obvious effects on personal health and comfort. If economics is the science of satisfying our material needs and wants then we are clearly failing to satisfy the need to keep warm of over 4 million families across the country.

Ballooning fuel prices also has a macro effect on our economy. Senior economists at the Bank of England have largely attributed the recent high levels of inflation (currently at 4.2% on the Consumer Price Index) to rising fuel costs. Energy prices push up the costs of production of our domestic industry which in turn is passed on the consumer in the form of higher retail prices. Transport costs and the cost of raw materials are linked to fuel prices and a clear pattern has emerged recently of rising inflation and rising price of oil and gas. Rising fuel prices also have a knock on effect on the cost of food. Food prices are highly sensitive to changes in transport costs and the Bank of England has stated that recent food prices rises are greater than to be expected. In the second quarter of 2011 inflation has fallen back from 4.5% to its current level on the CIP scale, although the Bank of England attributed this to falling high street prices and noted that fuel and food costs remained high for the same period.

It is mine and others' beliefs that the government and the energy regulator body Ofgem need to do more to curb the rise in gas prices. Run-away price rises are squeezing the budgets of too many households and pushing more families into poverty. Rising fuel costs are also pushing up inflation and stunting our economic recovery, this is partly due to foreign suppliers raising their price but a government subsidy could be used to prevent this rise being passed on to the consumer. Calling for government intervention in the domestic energy market will not be popular with the political centre, or with alarmists who will conjure up memories of the coal board, the 3 day week and poorly-run, tax absorbing state owned utility companies. That said, we cannot stand idly by and wait until having warmth in the winter becomes a luxury commodity while a former public owned industry continues to post record profits.

There are not many topics of conversation in politics that can be termed as sexy but gas surely is not one of them. Energy policy has focused on (the very important issue of) moving our dependency away from fossil fuels rather than how can we distribute the remaining non-renewable resources more fairly. In short we need to talk more about gas because, unpopular as it may be, it remains an important issue.

In the beginning

Personally, I find there’s nothing scarier than a blank page. Rewriting and editing I am fine with, but to go from the point of having nothing to the point of having something is the hardest part of the task.  So it is in the spirit of struggling with beginnings that we start.

I would like to make a few remarks on what to expect from these pages; in essence, the news. What follows is not about my life but the wider world and – that most undescriptive of phrases – current events. There will be opinion, interpretation and analysis – and, most likely, more than a hint of bias. I will not strive for objectivity and or simply reporting the facts. On the contrary, I will be subjective and provide personal reflections.

These pages will not be entirely given over to whatever are the significant events of the last few days.  There will be ideas about society and the individual, and my personal musings on how we live and what we should strive for (or what we should make all efforts to avoid). The writing might slant more towards the business and economic aspects of the news, mainly because that is my current area of interest, but I aim to discuss as much as possible and not simply one area.

Before we begin, I would like to state that my political alignment is to the left and what you will read here will have a definite left-wing slant. The opinions hereafter will (hopefully) be quite upsetting to anyone who agrees with what they read in The Daily Mail.

It will come as no great revelation that it is easy to be selfish and cynical, but still this needs to be said again. Ultimately, we need to look after each other, which is why I call myself a leftist. We aim for a more equal and tolerant society. We are against those who, however good their intentions are, would turn us against each other, punish the poor for desiring more, women for expressing their sexuality, homosexuals for being gay and the people who disagree for speaking out. Being on the left is important because we need to make the world a better place for us all to live in. All this may seem hopelessly vague, but I hope that future posts will clarify my position.

I hope to reach others out there like your good self, and reassure you that you are not alone. Many blogs of a left-wing slant which I have read have consoled me in dark moments of political isolation. Those of us with left-wing progressive views need to be reminded that others share our deeply-held convictions. We all think differently and disagree from time to time, which is one of the reasons the left is described as fractal and woolly. We have sympathy for people who hold similar beliefs to us, and we want to encourage others to take up the pen and write what they believe in.

I aim to make a difference.