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Saturday, 27 September 2014

False Teeth and Spectacles: and ISIS/ISIL

When the British National Health Service was created, in 1948, it immediately spent much more than had been budgetted. This was most obviously because a vast proportion of the population throughout previous history had suffered from appalling dentition; with a huge number of the people who became eligible for NHS dentistry having ill-fitting and ineffective false teeth. Over the next generation, preventive dental care [funded by the NHS] greatly improved the state of the people's teeth; but in 1948-50 the demand for false teeth 'free at the point of need' greatly exceeded what had been allowed for. The equivalent situation existed in the provision of spectacles; millions of people had struggled with poor eyesight and they were now entitled to spectacles, free at the point of need, So the NHS began by overspending, and the intention [expressed through the wartime Beveridge Report] that both the NHS and pensions would be funded by the National Insurance Fund to which all employed people would contribute proved to be inoperable.

Instead of building up a surplus while future pensioners were net contributors, as had been expected, the NHS took up the whole income to the Fund, and the NHS expenditure budget had to be topped up from general taxation: and so it has remained. National Insurance is now simply a second income tax that goes into the national budget, from which the NHS costs, and state old-age pensions - and social care for the elderly and necessitous - have to be paid. The costs of this complex of social provision [inflated also by other other payments of benefits] have meant that the trumpetted policy of Gideon Osborne to 'eliminate the deficit' on government spending has become a very sour joke. Under the 2010 coalition government there may have been a modest reduction in the rate at which the deficit is increasing, but even that is dubious. Government statistics are constantly being found to be outdated, for example as the result of EU rulings that the debt of Network Rail must be added to the  public debt total, and the earnings of prostitutes must be guesstimated and entered into the National Income figures.

And now comes the limited military action in Iraq - not yet in Syria - against the so-called Islamic State terror machine. This is bound to be costly: an estimate of £3 billion for this year has appeared in some newspapers. This is notionally to be debited against the government's fabled 'contingency fund'; but this is not a piggy-bank, such as the National Insurance Fund was meant to be. Each government making a budget for any year guesses how much revenue will come in to the state's coffers, and how much expenditure is anticipated; and an addition flow of cash is assumed to be available for any overspend in the period. The deficit will inevitably increase as the hundreds of millions are called upon to pay for the fuelling and equipment even of a few Tornado aircraft. David Cameron predicts that this war will continue for years; but the Tornados are due to be phased out, and the much-delayed replacement Typhoons have not been designed with a capability to replace the Tornados. So to prosecute the campaign against Isis the Tornados have to be kept operational, at ever-increasing cost. Again the short-sighted cheeseparing of politicians has ended in greater cost than was envisaged. It always happens!

Tuesday, 23 September 2014

Leadership Failure

The Labour Party Conference, even more than the other parties' conferences, is a ritual event where the tribes can come together and pretend that the erosion of their collective power - which has been going on since Harold Wilson's time [or earlier] - does not matter. Thus it is a feast of fatuity.

Traditionally the Leader's Speech has been a central feature of the event, and duly the Scribes and Pharisees of the movement [the journalists and political analysts] have to pretend that they consider it important. This year they have been made to appear more ridiculous than usual because The Leader 'forgot' to mention both the economy and immigration in his speech. He did remember, fatuously, to emphasise the word 'together' more than fifty times; which can be interpreted to mean that he expects the party to succumb to its ancient fissiparous tendency as the election looms closer.

His own painful inadequacy for any position of leadership was highlighted by the entire, hour-long performance. Party aparatchiks have tried to mitigate the situation by saying that Bully Balls did cover the economic issue adequately in his speech on Monday. He said a few things of marginal relevance. But the sum total of the Leader's and the Shadow Chancellor's offerings is to show that they have no formula for eradicating the deficit on state spending, or the deficit on the balance of payments, or substantively funding the National Health Service to meet the aspirations set out by Aneurin Bevan in 1947.

In the coming weeks we will see the fandango of fantasy at the Lib-Dem Conference, which a few Grauniadista lovies will  ensure becomes over-reported. And we will see the stage-managed pretence of unity and loyalty at the Tory Party Conference.

The sum total of these events will be to emphasise the uselessness of the political class, the vacuity of their supporters and the sycophantic irrelevance of most of the media .... and the country will continue to sink in the ocean of economic failure.

Tesco

Sorry! I had to take up this topic.

Tesco has a new Chief Executive. It is notorious that new CEOs try to pile bad news onto their predecessors, and to make sacrificial victims of the close associates of the former CEO.

It appears that this case cannot be dismissed as another example of that syndrome.

There has been puzzlement at the fact that Tesco has been delivering reasonable profits, despite their suffering from a very costly mistake in America and losing market share in their UK base business. This has coincided in time with a significant recession in the European countries where they have become entrenched.

The picture that is emerging is of a massive acreage of shop space, and a costly on-line operation, run by a bureaucracy with a low-paid and dispirited mass workforce.

Meanwhile customers have become more conscious of what gives them value for their scarce money. Instead of going routinely to one store for a weekly [or monthly] 'big shop', there is much greater selectivity in customer behaviour.

The comparison of price with perceived value remains important: simply offering the cheapest goods with 'no frills' and minimalist quality control has only limited attractiveness. While price advantage attracts customers to new outlets, the slow realisation that the range of goods is modest, and the availability of many items in stores is intermittent, causes disillusion. The more quickly they grow, the more customers will go through a cycle of welcoming, doubting and dismissing the super-cheap outlets.

The stores with bigger ranges and more-assured quality will recover their competitive power; especially while the delusion of macroeconomic recovery prevails. But as the competition between John Lewis/Waitrose, Morrisons, M&S, Sainsbury's, the Co-op, Tesco and local markets reveals significant excess capacity. The role of charismatic business leaders will return to central importance: and the ability of such leaders to identify and empower adequate close supporters will be a decisive factor in their success or failure.

Retail is going to become much more exciting in the next couple of years: and for some of the biggest businesses it is a question of survival.

Saturday, 20 September 2014

Giving Away More of Nothing

So, the party leaders say they agree - in principle - to more devolution of power in the UK; though Labour will fight to retain their rotten-borough parliamentary seats in Scotland.
They would all spend more money on this exercise; and they will also talk about giving powers to support economic growth in the regions. But there will be no serious plan, no measures that will actually enable people to make the economy grow in the only way that matters: in material production and in generating intellectual property that can be sold to the rest of the world.

Britain is well down a slippery slope, and this diversionary politics can only further deprive the country of the will and the ability to take the measures that are needed to reverse two generations of severe economic decline.

Friday, 19 September 2014

Sad About Scotland

Only four significant local authority areas had a YES vote in the Scottish Referendum. These were the once-great industrial cities of Dundee and Glasgow, and Glasgow's immeduate neighbours.

The Thatcherite destruction of the economy in these places in the eighties was matched by the mayhem that Thatcher wrought in West and South Yorkshire, The Northeast, Lancashire and Mwerseyside and the once-Black Country in England: these areas, too, can be expected to show cynical contempt for Westminster politics and politicians whenever they are given a chance to show it.

Although 364 Economists signed a letter to the TIMES deploring Thatcher's Monetarism, the whole profession agreed with the nonsensical pursuit of the 'competition' agenda that has been common to Blair, Brown and Cameron as well as Thatcher. Where the Economists disagreed with Thatcher was with her insistence on modesty in public spsnding; they preferred to believe that 'growth' could be fostered by Keynesian deficit spending. Blair-Brown and Cameron-Osborne practiced deficit spending - it is still going on, backed up by the reckless expansion of the money supply under 'quantitatiove easing' - and thus they have supported an increase in TRANSACTIONS, which is what they see as 'growth'. More people than ever are employed, mostly on extremely modest wages, distributing money and imported commodities around the system. The real economy, to which Dundee, Wolverhampton and Darlington contributed mightily between 1760 and 1960, has continued to decline.

Now the Westminster gang of politicians without life experience plan to spend years on constitutional tinkering; while the economy continues to go down the Suannee and Gidreon Osborne's nasty spending cuts reduce the standard of living for the most vulnerable groups in society. Things in Britain are getting nastier.  See my book, Sinking Britain, accessible from this site.

Wednesday, 17 September 2014

Steady Markets, Confident Bookies

An Irish associate assured me yesterday that her countrymen were confidently expecting that a 'silent majority' of Scots would vote NO tomorrow. Financial markets show only slight unease at the prospect of a YES; and one bookie claims already to have made some payments on the assumption of a NO vote.

One issue that still concerns people is that intimidation has been rife already, almost entirely by the YES camp. There are fears that this will continue actually at the polling stations, to which pro-independence parades are anticipated. If that happens, one must hope that the police do not turn a blind eye; as the racially-biased pro-Asian police reputedly did in Tower Hamlets during the recent local election.

The depths of the 'institutional racism' of the South Yorkshire police, exemplified in the child-sex scandal, is probably replicated in thirty towns and cities across England. It has not yet been reported from Scotland, so their force may creditably be clean. Let us hope that they maintain their reputation tomorrow

Sunday, 14 September 2014

Ocado next, surely?

I have spent a decade in bemusement at the ongoing catastrophe of Ocado. Its borrowings increase, its business model was always daft; but there have constantly been backers.

The model of selling somebody else's product, using a technology that the principals will more slowly and sensitively adopt within their business, can have no long-term happy ending for the outsider. Partially recognising this, Ocado entered into a secondary deal with Morrison's: just as Morrison's nosedived in the face of newly intensive competition.

Now Phones-4-U has been closed down, with a massive loss of jobs - estimated at 10,000 - and they didn't even build their business as agents for a single supplier whose commodities they retailed: they had two suppliers, as Ocado decided to do before the Morrison's debacle.

With yet another new generation of 'phones coming out, competition has intensified and the big primary retailers - represented by Vodafone and EE - have decided that they need all of the slender margin that the patent-holding brandowners allow to them in an increasingly competitive market; so they have had to pull the plug on their secondary channel of distribution. The wipeout of Phones-4-U is a portent, not the end of the process. APPLE have developed their retail showrooms very successfully. CURRIES have merged with a phone distributor to optimise sales per foot of shop floor space. Most people will for the foreseeable future want to hold, feel and see a £400-plus purchase before they buy any selected model: so they will want to see a range of options. Those who are hooked on Apple technology will want only to look at the Apple range, and will easily be enticed to an Apple store. Most other people will want to see a range - maybe including i-products - and so will want a variety retailer.

Retail markets in 'technology' will continue to be built on compromises between the holders of the intellectual property that is the main component in the price of the product and the retailers who enable the public to compare and contrast the devices for themselves; but the paramountcy of the brandowners will in the end always be decisive.

This is NOT the business model that is encapsulated in formal Economic theory.

Tuesday, 9 September 2014

Threatened Power Cuts and the Obvious Solution

Ofgem has again assured the public that there will be sufficient electrical generation capacity available to ensure that even on the darkest, coldest day of the winter there will be enough supply.

This is achieved by giving subsidies to companies to keep power stations that they are not normally allowed to use, so that the capacity can be brought into use. This mothballing is achieved at the expense of the customers. The plant is perfectly viable, and could serve for many more years: but it burns coal and thus is in breach of the laws on emissions control.

The otherwise-viable plant represents investment that customers paid for; and the replacement plant will be built only if customers are coerced into paying even higher prices: not only to meet the costs of the plant that is to be built but also to provide a nice cushion of profits for the companies that will have to raise the cash to pay for the construction. Most of the British capacity to build power stations was flogged-off cheap [or just shut down] under the Thatcherite clowns.

The larger coal-fired stations with many years of potential future life should be converted NOW to get their heat source from small nuclear power plant of the kind that Rolls-Royce and its partners have put into submarines for generations. This is safe efficient energy and the capability to make it mercifully still exists!

Of course, it won't be done because insiders did not think of it: so they will immediately look for 'reasons' why it is "not viable".

Sunday, 7 September 2014

Natural Allies 3

48 hours is a long time in international politics. Among the sub-plots at last week's NATO meeting in South Wales was the until-then-unthinkable possibility that Russia could provide a vital link to the Assad Regime in Iraq. This is seen as the most fruitful potential access route to NATO reaching an 'accommodation' with the Syrian tyrant to enable joint action to be taken against the latest Jihadi threat from Isis, otherwise known as IS and Isol.

In an interview published today [7 September] Henry Kissinger says that action should already have been taken to remove the threat of Isis/Isol/IS; and he joins in the chorus of those who argue that President Obama clearly has no clue of the importance or the urgency of the issue.

This morning's News also carry the unsurprising story that the Ukrainian ceasefire, barely 48 hours in existence, has been breached by both sides in the South of Ukraine. The common feature between the situation in Iraq/Syria and the Ukraine have not yet had the degree of attention that I suggest they deserve. The Presidents of Russia and Ukraine have agreed on the cease-fire; but neither of them has complete control of the forces on the ground. By definition, the 'rebel' fighters are all volunteers and are not under the command of Russian generals. Similarly, the aggressive and extremist Azov Battalion fighters are an irregular volunteer force. So just as Syria faces the problem of multiple anti-Assad forces [the 'official' rebels, Al Qaeda and Isol at least]  so there are multiple private armies in the east and south of the Ukraine.

There is a consensus opinion among commentators that provided a large degree of autonomy is given to a Russian-speaking entity within the Ukrainian Republic, and that a consequential caveat is applied on the extent to which Ukraine may enter west European institutions, President Putin's ambitions in the region will be satisfied. Then it falls to the Kiev government to establish discipline over its 'supporters' and to the Moscow government to rein in those whom it has sponsored.

Instead of bellicose and toothless talk about preparedness in the NATO alliance to 'do something' to preserve the 'territorial integrity' of Ukraine, the rhetoric from western chancelleries should be directed to a realistic acceptance of the realities on the ground; offering assistance to both Russia and Ukraine in controlling hotheads while allowing the irregulars to breath fire at each other as a long-term accommodation is negotiated.

Sanctions are hurting Russia: they are also adversely affecting EU dairy prices and exports at a time when strong growth is needed. The common interests of the powers are clear and can successfully be achieved.

Saturday, 6 September 2014

The cost of the bedroom tax

The House of Commons yesterday gave a Second Reading to a Bill that would mitigate the impact of the so-called bedroom tax, During the debate a minister said the cost of the proposed change to the state would be £1 billion annually, and others - Conservatives - suggested that this would militate against the government's plan for 'economic recovery'.

The programme of 'cuts' that has been pursued for four years has failed to eradicate the deficit on state spending, and done nothing to reduce the accumulated [and accumulating] national debt. But it has succeeded in reducing the quality of life very broadly accross the country, as well as reducing the military budget to a degree that endangers to country.

In the last few days it has been revealed by the Inspectorate of Constabulary that whole categories of crime are no longer being investigated. In many thousands of cases crimes are not even recorded: supposedly because of cuts in police budgets. Prisons are becoming increasingly crowded, worse managed and less hygienic as staff cuts bite ever deeper. Railway travel is becoming more expensive, bus services are being cut, housing is becoming dearer and scarcer, threats to the National Health Service are a constant theme of the news.

The cost of the cuts, in terms of quality of life, is immense: though it is intrinsically incalculable. The naive Economists say that cutting public spending is the only possible response to the ongoing failure of the economy; with the implication that both personal earnings and living standards for the vast majority of the population must continue to decline while the rich become richer and more enabled to avoid taxes.

A national strategy is needed to face the real ecomnomic issue that underlies all others: the failure of politicians and Economists to recognise that only an increase in the productiveness of activities really matters. The crucial difference between productiveness and 'productivity' [in which Britain is also embrarrassingly bad] must be exposed: only then can robust economic growth be envisaged,

This is set out in my recent book:Sinking Britain; as advertised in this blog,

Thursday, 4 September 2014

Natural Allies 2

As the member countries of NATO gather to heap obloquy of Putin's Russia, it behoves British observers to remember the  history of the relationship of the UK and Russia. Apart from the distraction of the 'Great Game' around Afghanistan [which has recurred around Afghanistan from around 1800 until the present day; though the west simply helped the Afghans defeat Brezhnev and subsequently Russia has kept aloof while the Afghans have seen off Nato forces] and the stupid, costly Crimean War of 1854-6 Britain and Russia have never been in open conflict.

The rise of a bellicose Germany in the period after the Franco-Prussian war of 1870 - reinforced by the contrarian personality of Kaiser Wilhelm II - caused the autocratic Russia to seek an unlikely ally in republican France and led Britain to enter into detailed discussions with the French government and military on how British forces could be deployed on the continent if circumstances [which were easily foreseeable] led to a war situation between Britain and Germany; as happened with the German invasion of Belgium in 1914. The actual pattern of events that led the great Empires on the continent to sleepwalk to their own destruction has been well retold on the centenary, and needs no gloss here. Suffice it to recall that the British government invited Field Marshal Kitchener [the greatest general of the past generation] to take control of the whole enterprise as Minister for War. He immediately recognised what sort of war it was going to be, and began recruiting a mass army of over a million men; let nobody blame the field commanders for the awful losses that followed: the greatest military minds at that time regarded the casualties as inescapable.

Russia was plunged into a similar trench war, after appalling generalship lost them the chance of marching straight on to Berlin while the Germans were concentrating on the Western Front. By the middle of 1916 the regime was cracking under the human and material demands of the war, and the British decided that the best thing that they could so was to send Kitchener to advise the Tsar on how to pull things together. Kitchener was killed at sea on the way to Russia and the regime duly collapsed. From 1917 Russia had a dysfunctional, brutal, ideological government that became increasingly paranoid about 'encirclement' by the capitalist world. British engineers from Vickers whose input was essential for the industrialisation programme were put up in a show trial as 'saboteurs' and relations with the capitalist world generally worsened in the 'thirties. Hence Lenin's successor [and probable murderer] Stalin entered a 'pact with the devil' - Hitler -  which he loyally kept until Hitler invaded [and almost occupied] Russia. Only the combined forces of the so-called USSR and the British Empire and the USA could defeat Hitler, which they did at immense cost in the form of Russian lives and British wealth. The USA was thereafter militarily and economically predominant: but after occupying half of Europe after the defeat of Germany [including redrawing the frontiers of Germany and Poland] the Soviet regime wrung enough out of the human and material resources that they could plunder to be able to maintain an increasingly clunky defence against the capitalist 'west': responding to that military consultation in Europe [as a loyal ally of the USA] drove Britain closer to bankruptcy.

Since the collapse of the USSR the cold-war mentality of the NATO allies has been maintained: and it now risks punging us into another tragedy that can properly be avoided: see part 3, coming next.

Wednesday, 3 September 2014

Natural Allies

One of the oldest buildings in Moscow is a small late-medieval house that has traditionally been known as the English Embassy. It is reputedly where the Ambassadors sent by Queen Mary I [Mary Tudor] stayed when they had made the overland journey to Moscow from Archangel, the northerly port to which they had made a hazardous voyage right round Scandinavia. At that time, the Swedish empire cut Russia off from the Baltic; making the far north the only maritime access to European Russia. To this day the Kremlin exhibits superb pieces of Tudor silver: ambassadorial gifts brought for the Tsars by Ambassadors from Mary and later from Elizabeth I [to whom Ivan the Terrible proposed marriage as the firmest form of alliance that could be forged]. While Elizabeth was conscious of the relative isolation of her protestant regime in western Europe, she recognised affinity with the almost-landlocked empire of Muscovy and possibilities for joint working were sketched out.

Through the first half of the seventeenth century contacts were maintained intermittently, while England established the first overseas empire, and Russia concentrated on consolidating its territory and probing for expansion into central Asia. When the gigantic Peter I - the Great - decided to break out into Europe via the Baltic Sea, he decided that he must learn about ships and navies: so he travelled under a very flimsy incognito to western Europe. He learned about military science in Germany and France, then about shipbuilding and naval operations in the Netherlands and England where he spend many months working in the Deptford shipyard. Returning to Russia, he decreed that a muddy estuary in the northwest corner of European Russia should become a port and the capital city: bringing in architects and engineers to the new St Petersburg to make his dream a reality. Then by waging war successively against Sweden and Turkey he opened coastal access to the Baltic and the Black Sea.

During the eighteenth century Britain expanded as a global economic power by the processes of trade and colonisation, all based on marine trade and a strong navy; and Russia emerged as a power by virtue of fabulous wealth in natural resources as it spread its sovereignty over more of the Eurasian continental mass. Right at the end of the century, revolutionary France - especially after Napoleon took power - found that their emergence as the predominating power in Europe was threatened by Britain and by Russia. Napoleon's Moscow campaign was a disaster on land which was even greater than the catastrophic destruction of French and Spanish naval power at Trafalgar. Britain and Russia triumphed globally: Britain compensated for the loss of the United States by consolidating power in India, settling Canada, Australia and New Zealand, and adding a network of coastal colonies in all the continents.

Then began the 'Great Game': as the British Raj spread northward towards Afghanistan, Russia was capturing colonies in Central Asia and was shortly to establish colonies adjacent to Afghanistan. By 1850 colonial rivalry in Asia also spread to the Turkish empire. Russia wanted to emancipate the millions of fellow-slavs who were Turkish subjects, and also wanted to gain a longer coast on the the Black Sea. Britain and France decided to curb Russia's ambitions in the Balkans and attacked Russia in the Crimean war. That descended into costly stalemate, and was ended in a face-saving peace. By the end of the nineteenth century the British and the French recognised in Russia their natural ally for the containment of a newly-united and aggressive Germany. Then came the tragedy of the First World War: which I will examine next.

Monday, 1 September 2014

Debt and 'Value'

Britain's official National Debt has increased by £30 BILLION due to an EU ruling [adopted by the national statisticians] that counts the debts outstanding by Network Rail - already guaranteed by the state - shall be counted as part of the national debt. Since the debt is increasing anyway, as the deficit on government spending rolls on, this is just a small addition to a sum that will soon be equal to three-quarters of the reported turnover of the economy in a year [the Gross National Product]. Gideon Osborne's abject failure to eradicate the month-by-month deficit becomes even more obvious; and the deficit on Britain's balance of payments with the rest of the world also continues to increase.

So what security can Britain offer to the aliens who continue to lend money to the state? What is the 'value' of the assets that are at the command of the government? Over the last forty years there has been a massive sell-off of the formerly nationalised industries and of the land-bank that used to be occupied by airfields, shipyards, barracks and ministry buildings: so the actual physical and financial assets at the command of the government are about the least ever. They go no distance to meeting the perceived 'value' of the debt.

What about the notion that the British people, all taken together, owe the national debt: what capacity does the nation have to buy back the debt from foreign owners? The answer is simple and painful: personal estates are overwhelmingly in debt; most households have no net assets. So what about firms? Surely they have massive assets? Yes, they do: but they belong to the shareholders and the bondholders in the companies, many of which belong to foreign companies and individuals. The 'value' of companies - their day-by day share price, multiplied by the number of shares issued - can change dramatically: the biggest supermarket chain, Tesco, fell by 10% last Friday. Nobody knows what Tesco is really 'worth', though it is clear that the turnover and profitability of the company has declined over recent years. The directors fear that the decline could continue, so they have brought forward the installation of a new chief executive. There are deeply in competition with German-originated companies that specialise in no-frills low-priced goods. The German companies plan to increase the number of their stores quickly, meaning that the number of square metres of  retail space in total is increasing: while the turnover per square metre in Tesco and Morrisons and other stores declines. Hence competition is inexorably decreasing the 'value' of the less-successful companies' estates.

Yesterday's Sunday Telegraph ran a feature on Manchester City Football Club, asking how much the 'BRAND'  is 'worth'. It was noted that the owners of the company that controls the club have 'invested' £930 million - mostly in buying and paying managers and players - with the result that trophies have been won and thus a global reputation which could eventually challenge that of Manchester United has been achieved. This could enable to club to sell shirts and other equipment and sell access to firms to share in the kudos of the club; enabling observers to place an estimated 'value' of £330 million on the brand. But how much of that 'value' could be unlocked in a sale of the club? Is it a British asset? It is located in Britain and registered in British law; but it belongs to the Middle Eastern 'investors' who supplied most of the £930 million. It is of no use as a guarantee of the national debt.

 The whole thing rests on 'confidence': what is that worth?