A Board of Trade?

Fifty hours before the polling stations open for the General Election, I first heard the suggestion from the Tory party that the Board of Trade should be revived, with the intention to drum up trade for the UK after Brexit.

A Liberal Democrat source was reported to have given the snap reaction that this was a seventeenth-century 'solution' to a twenty-first century problem. That was a clever comment, and it shows a fair knowledge of history; but it also shows that that source has not yet caught up with President Trump's thinking. As I have pointed out in this column recently, the policies that secured Mr Trump's election victory can be characterised as reminiscent of some that flourished in the seventeenth-century. I have suggested that Mr Trump has thought on parallel lines to those of the great J-B Colbert, who built up in the French economy massively in the reign of Louis XIV. But I explicitly said that I had no apprehension that Mr Trump was consciously citing mercantilist writers: my view is that in the present conditions of global trade and technology it is entirely rational to form policies that have resonances similar to those that worked triumphantly in the mid-seventeenth century; and through the eighteenth century, in those countries where they were intelligently applied.

Britain had a Board of Trade for centuries. It was allowed to become dormant - as a committee - in the very early twentieth century, though it was not abolished; and successive Archbishops of Canterbury were surprised to find that they were members of the Board which never met. The title President of the Board of Trade was given to a member of the government who bore some responsibility for trade matters|, including the supervision of the insurance industry until Gordon Brown's restructuring of financial services when he was Chancellor of the Exchequer. Ancient titles, including Chancellor of the Duchy of Lancaster and Lord Privy Seal, remain to this day to be allocated to 'spare' ministers whose duties are determined on a short-term basis by the Prime Minister.

The new Board of Trade, if it is established, is seen as a body which will find customers for British products and services in the post-Brexit world; and seek 'inward investment' to the UK. The second of these objectives indicates that the little thinking that has been applied to the concept follows on from the second most destructive of the policy imperatives that was laid down by George Osborne. The ruinous policy of austerity [which Mrs May implemented at the Home Office in the reduction in the police force] was Osborne's number one priority. Osborne's number two objective was to attract 'inward investment' to the country; and its consequence was to sell infrastructure and the companies that operate it [such as water, power supply and railways] to foreigners. For a one-off sum flowing into the British economy, control of the firms and the income streams that they attract go to foreigners; and thereafter British consumers pay tribute to the alien owners. Even more damaging was the succession of innovative firms that had established now intellectual property that were sold to foreign owners before they had even begun to make significant profits for UK investors. Those investors, and the inventors themselves, were well-paid for surrendering their rights to future returns from the companies that could make vast amounts of money for their owners: to whom British users of the products and services would have to pay high retail prices.

Even the Econocracy* have recognised that Britain's economy is blighted by low productivity. This blog has repeatedly emphasised that productivity follows on from productiveness. As was emphasised in Millicent Fawcett's Political Economy for Beginners [1870] productiveness is the situation where firms make profits which they can invest in improving their products and processes and thus raise the productivity of their businesses. That key fact has been ignored by Economists since 1890, to the massive detriment of the economy. Selling the profit stream that comes into a business to a foreign firm gives the aliens the option to invest where they see fit, and often does nothing to enhance British productivity. So it looks as if the Tories have found yet another way of despoiling the economy, at no benefit to the population.

* For an explanation of ECONOCRACY, refer to the website of the Manchester Post-Crash Economics Society.

Economics and the Election

Economic issues are, as usual, of vital importance in the current UK election campaign. Both leading political parties have been lambasted by a major independent think-tank for their very evident failure to provide clear costings for their policies, and vagueness about how they would pay for them. This has been particularly shameful in the shoddy manner in which Mrs May's personal office - apparently transcendent in its power over the party machine - has mishandled the question of how much of the 'value' of a person's home can fairly be put into the pool of deferred resources that would notionally fund social care for the elderly. The question of how such a pool would be managed, over the generations to come, has not even been addressed. Yet the Tories are still slated to win, though at present the polls indicate a narrowing of their once-dramatic lead over other parties.

Behind this very worrying issue - of how the policies presented by the politicians stack up economically - lies the more fundamental question of what economic advice would be acceptable to the electorate, as representing a sound assessment based on serious data. The Brexit vote showed that the electorate was unconvinced by the Economists, who almost-unanimously promised that Brexit would be an unmitigated disaster. The vote can, indeed, be seen as an expression of no confidence in the 'Economics Profession' and in politicians [quintessentially George Osborne] who deploy their arguments.

This is in total contrast the the situation in the early nineteen-sixties, when a few economic think-tanks - notably the National Instititute for Economic and Social Research - and the Treasury produced closely convergent and highly detailed forecasts, on the basis of which Chancellors of the Exchequer purported to 'fine tune'  the economy so that it kept to a stable growth-path. That heyday of neo-Keynesianism collapsed in the disaster of inflation in the late 'sixties and 'seventies; such that in the 'eighties all forms of Keynesianism were set aside. The sorry story is told in my book: NO CONFIDENCE: the Brexit Vote and Economics, as advertised alongside this blog.

The point I want to make this morning is the simple one: that the over-confidence of an alliance of Economists and politicians in the nineteen-fifties and early 'sixties led to the chaos of the nineteen-seventies, which led to the repudiation of the purported Keynesians. They were replaced by a school of Economists known as Monetarists, who then mutated into the free-market advocates of the Econocracy who claim that the models that they have cribbed from physics [and grotesquesly misapplied to economic data] contain deep truths. On the basis of those claims, the present British policy of austerity is based: and that is now close to the point where it will be destructive of social cohesion: despite which, if the Tories win the election, the austerity policy will be continued. This is not emphasised in the Conservatives' propaganda, but it is their policy [though it is probable that Mrs May has no comprehension of its implications]. Labour do not like austerity, and promise to overset it; but they leave it clear that they have no idea how this would work, and what would be its long-term effects.

An over-mighty Economics Profession allied with politicians to plunge the country into the inflation of the nineteen-seventies. Now the eclipse of a disbelieved Econocracy leaves the electorate with no neo-scientific means of judging between two completely incredible manifestos. What prospect does that offer the youth of the soon-to-be adrift United Kingdom?

Mismanaging News

George Osborne has committed a major gaffe in public relations, by describing his biggest tax 'raid' in this year's Budget as a mere simplification of the tax system. The resentment that this has set in train will mature slowly, and be disastrous for the man's image and for his party. Meanwhile, in the twenty-four hours since he made the cock-up he has resorted to an item of crude propaganda. In the tradition of Potemkin, Stalin and Putin, his sycophants have arranged with Glaxo Smithkline to announce their decision to extend factories in the UK on Budget Day, and even to say that decisions in the Budget were favourable to the decision. Osborne touted his sneer around the TV and radio studios to extol the great investment, and suggest that it was vastly more important than the granny tax.

The company's plans must have been in train for many months. It would have been outrageously improper if the Treasury had shared their plans for setting rates of corporation tax with the company over that period. The actual reasons for the Glaxo decision British manufacturing is becoming 'affordable' again to international companies, as has been evident over many months past in the motor and fashion industries. The company owns sites and has infrastructure with skilled staff around the UK. It will be easier and possibly cheaper to invest in the UK, with or without tinkering the tax system. One can speculate what inducement was offered to the company to arrange its announcement to coincide with Budget Day, but it was probably trivial.

Osborne used the same trick a few weeks earlier, when he grabbed for his own publicity machine the announcement that a Chinese Wealth Fund was buying a block of shares in Thames Water. This transaction had been arranged as a business deal over some months but the announcement was arranged to coincide with the Chancellor's 'triumphant' return from a nugatory visit to China. There was no correlation between the visit and the deal: the announcement was crude propaganda. Such are the standards and practices that impress the current crop of puerile politicians: indeed a country gets the government that it deserves!

Osborne Bashes the Old and Threatens the Future

George Osborne, the British Finance Minister, yesterday performed the annual ritual of presenting a plan of spending and taxation [known as the Budget] and the Labour opposition joined in the ritual by quibbling about the data that were presented. None of the lead speakers in the discussion has ever held a job in the 'real economy' for a significant number of years, and all the performers read statements that were prepared by teams of script writers and Economists.

The hallmark of the Budget was the expressed intention that all the concessions that were made to taxpayers were compensated by equivalent increases in other taxes. An increase in state retirement pensions was offset by a reduction in tax reliefs for millions of pensioners. The Liberal Democrats' cherished policy of increasing the level of income that is exempt from income tax was offset by cuts in benefits and tax credits, and by raised taxes on fuel, cigarettes and alcohol: they were shown even more than previously to be totemistic twerps as they boasted of their 'great achievement'. The star of the day, Osborne, again showed the depth of his nervousness by  exaggerating his swagger and by the reedy edge that worsens his always-sneery voice: the more cock-sure he looked, the more his voice betrayed the fact that he was well beyond his comfort zone. His minders had clearly not recognised that critics and opponents would set together proposed tax reliefs for the rich and  increased taxes, diminished benefits and reduced tax reliefs for the relatively poor. The elaborate game of balancing gains and losses for each income decile that so pleases the inner circle means nothing to the electorate at large.

Osborne presented a 'tidying' of taxation that turned out [only after examining the supporting documents that were published the same day] to be the biggest tax grab in the Budget: his misjudgement in trying to introduce the new grab from pensioners as a mere administrative detail will haunt him. Alongside his support for the ruinous Health and Social Care Act and the leading role he has taken in the government's campaign to undermine the protection of the cherished countryside he has probably done enough to bring down the government at the next election. The sooner the coalition government collapses, the fresher will be the public memory of Osborne's duplicity and silliness and the more certain will be the public repudiation of both coalition parties. Labour are a shambles, and they will fail spectacularly as a government: but they are 'not this lot' and that is all that is needed to return them to power.

The British newspapers today bash the 'granny tax' but recognise that much more important news is happening outside little Britain in their features on the siege in Toulouse [France] where a confessed killer is holed-up in a flat after exacerbating racial tensions and affecting the volatile mood of Israelis. Analysts of Britain will recognise that the Budget does nothing to accelerate the reduction of the endemic deficit on state spending and nothing that will significantly foster economic growth. For the last two years Osborne's 'austerity' programme has encouraged international investors to continue supporting British government debt: yesterday's Budget brought forward the date when analysts will stress the precariousness of the government  and the probability that an early election will open the gates to chaos. This tragic inevitability is made one significant step more certain by Osborne's performance yesterday.

Weasly Georgie and Blustering Balls

The big stories in the world today are the EU, Iran in the wider context of the Middle East, and the election in the Democratic Republic of the Congo; but I begin with the concerns of little Britain with Northern Ireland. This is because of the United Kingdom's significance as an example of Economics-in-action. For good or ill Britain has been a global leader both in the formulation of economic theory and in the implementation - often badly - of some of those theories.

Chancellor of the Exchequer George Osborne yesterday pushed his reedy, waspish voice to the limit in presenting his latest policies to the House of Commons: and met with a blustering blast of crude propaganda from one of the major authors of the British aspect of the western world's crisis, Ed Balls. Balls' line was to forget the history of the past 15 years - during which he has had a uniquely powerful influence on bullying Gordon Brown - and to mock the easy target of silly Conservative propaganda that had cited passing incidents such as the royal wedding as explanations for announced economic targets not being met. This was a continuance of the despicable tradition that was identified by Watkins and me in Can Britain Survive? [published 1971]. For more than 50 years the political parties have maintained a pointless game in which they offered increasingly convergent, but argumentatively-differentiated, policies for handing to the electorate wealth that the country did not have. Meanwhile the country has wantonly been deindustrialised and governments dominated by both major parties  have sold much of the national infrastructure [which has largely been alienated to foreign owners] to be operated at a profit that is taken from fees and fares paid by the lower-paid majority of the population.

As long as party politicians continue speciously to denounce each other in a singularly unedifying political Punch-and-Judy show there is no hope that the country can begin even to plan to recover from more than two generations of despoliation.Nevertheless the basic principles that Osborne seems to be adumbrating would be essential components of a Grand National Strategy to address the problem. Expectations of standards of living must be depressed from what had appeared to be available under the Blair-Brown-Balls government; but the pain must not be crowded on the labouring poor. The authors of the disaster - Economists, politicians of all parties who have ever cheered their leaders in the Hee-Haw show at the House of Commons, journalists, senior civil servants, 'bankers', and exploitative executives - must bear their share of blame and a due proportion of the cost of the rescue [though we must accept the old adage that the seizure of the whole wealth of the rich would not keep the poor in bread and cheese for a year: while it would devastate future national product]. Osborne's little steps to create a positive start to infrastructure development, to enable banks to maintain some of their loans to small businesses [even as they build up their balance sheets to meet regulatory requirements] and to encourage 'industry' are so small as to be trivial relative to the glaring need.

The suggestion that a significant programme of infrastructure construction should be funded by the private sector, therefore run for profit, is plainly regressive: the mass of the users will be the people who are already experiencing declining living standards. In keeping the cost off national balance sheet the Chancellor hopes to maintain the security of the public sector deficit management plan [it is no longer a deficit-elimination plan]; but this is clearly a short-term device. In  the longer term some capital assets would have been created; but they will be private and not public goods; so politicians should not expect that the electorate will rise up to applaud them. It is envisaged that pension funds should be major investors in new infrastructure projects; which means that they cannot invest the same money in state bonds or in commerce or in industry. It is implicit that most of the investment would come from private sector pension funds. As Osborne now anticipates the government needing to borrow more than expected for longer, it becomes problematic as to who the buyers of that debt will be, and which price the government will have to offer the possible buyers to persuade them not to invest in the favoured infrastructure schemes instead. The lack of joined-up-ness in the 'strategy' is painful to observe. The debate has been put on a new footing by the pessimistic data that were reported in the Autumn Statement, but the parliamentary name-calling that followed today shows that the big lesson is still not recognised. Politics remains on its ruinous repetitive path to oblivion.

In the wider world the Congolese election has begun: that it is happening at all is pretty wonderful. In almost half a century since independence from Belgium this massive territory has been despoiled by tyrants and ravaged by warlords both natives and those making incursions from neighbouring states. The world has sold arms to any group that had the cash to buy them, bought commodities from both legal and illegal sources, and blamed the benighted people for their misfortunes. The oxymoronically designated Democratic Republic has wallowed in its own sovereignty to the mighty disadvantage of the majority of the people: but it has huge known resources and doubtless massive natural assets yet to be discovered. It has a relatively low density of population compared to Europe or Asia. The long term prospects for those who can survive into the next generation are potentially among the best in the world: but little of that potential is accessible now to the mass electorate who face a bemusingly complex voting system. Europeans can pity them; but they can have higher hopes based on real resources than can any European nation west of Russia.

Iran periodically allows 'demonstrators' to sack an embassy chancellery. The victimised state makes a fuss, and the windbags of friendly chancelleries and the United Nations get camera-time to denounce the 'outrage'. The possibility of an American-equipped and authorised Israeli 'strike' on some Iranian installation is canvassed: and in all such circumstances to date the Israelis have been wise enough not to indulge in indecent exposure. So the net result is that the UK may have a small short-term saving on diplomatic representation. There may be some more nominal 'sanctions' on Iran which some states will be prepared to breach and the world will carry on undisturbed for the time being. So the story is not so big, after all.

What, then, about the EU and the eurozone? Stock markets have risen today on the back of rumours that the International Monetary Fund will join with the European Central Bank in 'partially insuring' eurozone member states' debts. There is absolutely no evidence that such a scheme would prove to be robust if it was called upon to 'rescue' Spain or Italy. So the shadow boxing between markets, states and European institutions slightly changes focus. There is no substantive development there.

What has seemed a very news-filled day is really very ordinary. Back home in the UK the one-day strike by teachers and other public sector workers turned out to be more of a jolly - an interesting alternative experience for some of the participants who did not just stay at home - than a significant event.Nobody really cares how many people went on strike, and very few people believe that the average public-sector pension is £4,000 a year as the unions have said, without any evidence of how that 'average' has been computed. But there is really big news lying behind this: alongside the warnings that the economy is entering a second phase of 'recession' there is an unprecedented social mood of depressed acquiescence. If some group were to set themselves up as a militant 'vanguard' of a revolutionary mass movement 'against the cuts' they would find that everyone else shrank away from them. A depressive psychosis is already well established. Society and polity are, if anything, ahead of the economy in accepting the inevitability of depression. Yah-boo politics can only make this worse; but that is all that Clegg and Cameron, Balls and poor little Milliband know: primary-school playground behaviour prevails when the country needs - at the very least - a Grand Coalition. This may be all that the machine politicians can comprehend: but the decent majority of the citizenry deserve better!

Osborne Bashes Bonuses

The Brown government is likely to loose the next General Election; but it is increasingly unlikely that the Tories will win - other than by default. There is a distinct lack of enthusiasm for the Etonians and their associates among the majority of uncommitted and undecided voters.
George Osborne the shadow chancellor made a populist pitch today, with his proposal that people in 'retail' banks should not be paid significant bonuses; but the profits should instead be used for investment in businesses.
Businesses certainly need access to funding. For this purpose, they need banks. Most banks have been foolishly, even recklessly, run in past years; but the current crop of senior managers have been retained or engaged on salary-with-bonus packages that are designed to ensure that the retail banks become once more fit for purpose. The bosses will have earned those packages, in full, if the objectives are achieved and 'real world' businesses and viable individuals can borrow responsibly in future.
By contrast Osborne appears to have backed off from wanting to ban - or draconically to limit - the bonuses that traders and product designers are due to be paid in the 'casino' wholesale financial services business. Yet that is the sector against which public disgust has most strongly been directed, the market that almost destroyed the world economy. Doubtless he has been told by his shadow treasury team that a future government would have a devil of a job balancing the national books if these 'investment bankers' and traders stopped being paid massive taxable sums in the UK. It will be bad enough for government cash-flow if part of the bonus is received in shares, or is otherwise deferred, because the immediately accessible tax take is reduced.
Thus in this area - as in so many others - there is no clear difference between government and opposition [and the Lib Dems offer no innovation, notwithstanding the forensic skill of Vince Cable].
Policymakers can only thrash around for the least-painful way out of the mess into which 'brilliant' Chancellor Brown allowed the system to propel us all. Political parties have no relevance in this crisis management, but - suprisingly - in this context, Darling seems marginally to be the better man for job; pity about his leader!