A sane, balanced voice

If there is, this week, one piece Malcolm wishes he had the intellect to have written, it is a piece in the Economist.

It is headed Austerity alarm, sub-titled

Both sides in the row over stimulus v austerity exaggerate, but the austerity lobby is the more dangerous.

Hunt it out.

It makes sense.

Sphere: Related Content

Noticed anything lately?


Sphere: Related Content

Trouble brewing

The beer behemoth InBev has problems. Consumption of its product is dropping: in its home market, the Belgians are quaffing about a fifth less than they were at the start of the decade. Last week, InBev announced job-cuts of 10% of the workforce: this must be the second or third round of redundancies in recent years.

Another way of looking at that is InBev's pre-tax earning jumped 12% last year, on a 9-month drop in sales of 2%. A triumph for the beancounters (and InBev count beans as well as anybody: their brews are less remarkable).

For some hours last Friday the workers held managers hostage. Since InBev's staple products in Belgium involve Stella Artois and Jupiler, Malcolm feels temporary internment may be too good for them.

Now, then may be the moment for Malcolm to review his few days in Belgium, just before Christmas. They were, he proudly boasts, a few beer-soaked days in which he avoided all direct contact with the products of InBev.

So ... next boozy post coming up. Sphere: Related Content

How green was my power cut?

The BBC overnight are reporting that a fire has taken out the Kingsnorth power station in Kent.

That's some two bigga-watts of capacity off-line for the time being.

We are, it seems, in the throes of the coldest winter "this century" (which is hardly a big deal in itself) or since 1963 (if we accept the regional press, and seems more impressive).

The coming week sees schools re-opening, factories and commerce reviving after the seasonal break. At some point in the next couple of weeks, we should be hitting the highest annual power demands. There's an ever-s0-slightly worrying National Grid graph showing the predicted surplus capacity over the coming few days. Round about the middle of the week, that surplus capacity could be down to five Kingsnorths. Fair enough?

It will be instructive to see how close we come to the doomsters' predictions that black-outs are inevitable by mid-decade. If/when the Great British Up-turn comes along (the £ cheap-as-chips, the € desperately overpriced, production coming home because the British work-bod now does it for peanuts), that time-frame could be shortened.

One can also watch the real-time power consumption, courtesy of the national grid website. For example, as this post is made, out of a total early hours demand of 33000 MW and increasing, a tenth of that is coming from the gritty north to the soft south. We see that Scotland is exporting 546 MW to England, Northern Ireland 288 MW (presumably to southern Scotland), and the French (mainly nuclear) plants are contributing 1310 MW.

Will this be the moment we regret not going nuclear? Sphere: Related Content

The UK's coming iPhone mania

Today, officially, we had confirmed what had long been predestined, predicted and overdue. The O2 network's monopoly on the iPhone has been broken:

Orange's success in breaking into O2's exclusive deal to stock the iPhone is expected to lead to a Christmas price war with the cost of the Apple handset coming down for UK consumers. It is also likely to be available from at least one more mobile phone operator, with Vodafone also understood to be close to signing a deal with Apple, though it may not have the device in time for Christmas. Executives at Vodafone, which stocks the iPhone in just under a dozen countries, have long maintained that they would like to get their hands on it in the UK.

For the record, the current O2 pricing is:

The basic 8GB version of the handset currently costs £96.89 for a customer willing to pay £29.38 a month under an 18-month contract, but is free for anyone willing to spend £44.05 a month for the same period. The largest 32GB device is £274.23 at £29.38 a month over 18 months and free only for someone willing to pay £73.41 a month over two years. This makes the total cost of the phones between £625.73 and £792.90 for the basic phone over 18 months, and between £803.07 and £1,761.84 for the 32GB phone over 18 months.

Ouch! To help the odd transatlantic reader here, that means the top of the range 3GS costs a mere $2,800 over an eighteen month lock-in (which also denies a couple of iterations of up-grading).

More to the point, it seems that Orange and any other network buying in do so without Apple taking a share of the revenue.

What is happening, of course, is that the iPhone market has matured considerably. None of the competitors have managed to match the appeal and salescraft of Apple's prestige model. The constabularies of the UK would tell us that on thefts alone. As a result, the advertising for the iP{hone has changed: it no longer features the hardware, but it sells (very successfully) the associated applications.

So, chuck this into the admixture:

Apple's App Store is home to some 85,000 applications as of Monday, and the company claims that over two billion apps have been downloaded by iPhone and iPod touch users so far.

Apple CEO Steve Jobs commented "The rate of App Store downloads continues to accelerate with users downloading a staggering two billion apps in just over a year, including more than half a billion apps this quarter alone."

The App Store is Apple's online service where iPhone and iPod touch owners can find and download third party applications for their handheld. The store is home to games, productivity applications, social networking apps, business tools, and more.

Apple's App Store launched in July 2009 and had already seen 1.5 billion application downloads by its first anniversary only two months ago.

That's one entire story from macobserver.com, today.

If it were not for the Apple habit of over-pricing (to retain the prestige image), Steve Jobs could probably do a King C. Gillette (he's the one you didn't recognise at the head of the post), give away the iPhone and collect on the apps.

In passing, the iPhone is the one bit of Apple kit that Malcolm neither has nor covets. Sphere: Related Content

Pity the poor rich

(A Saturday extravaganza)

A famed snatch of dialogue:

Scott Fitzgerald: You know, Hem, the rich are not like us.

Ernest Hemingway: Nah: they've got more money.

One of the more sublime places on Earth is Cap Ferrat.

The bay of Villefranche to the west, where the big cruising liners moor for the day, so the inmates can briefly escape to Nice. To the east, the monstrous superyachts and the lesser Tupperware© rock gently off Beaulieu-sur-mer. The Mediterranean glitters in all directions, except where the great white bluffs of the Alpine foothills tower to the north, sheltering this peninsula from the worst blasts of winter.

Inevitably Cap Ferrat is an enclave of the very well-heeled, as is attested by the high and impenetrable hedges, the screens, gates and shutters of the grand (and not-so-grand) mansions. Current residents include Paul Allen of Microsoft and the Baron Lloyd-Webber.

They continue the long line of louche and lucrified lay-abouts:

Nicolas II, Empresses Eugénie, Elisabeth of Austria and Marie of Roumania, James Gordon Bennet and especially Leopold II of Belgium and Béatrice de Rothschild have all lived here. The post-war era (1939-45) also brought its lot of celebrities: Charlie Chaplin, David Niven, Elisabeth Taylor, Gregory Peck... Presidents of France were great fans of the Cape: Vincent Auriol, René Coty, Charles de Gaulle, Giscard d’Estaing. Writers also liked to retire here: Somerset Maugham, Blaise Cendras, Armand Lanoux, Alain Decaux, as well as actors and artists: Jean Gabin, Jean-Paul Belmondo, Gilbert Bécaud, Charles Aznavour, Jacques Tati, Bourvil, Jean Marais and Jean Cocteau.

Jean-François Dieterich of the Agence du Littoral describes his potential clients:

Cap Ferrat plays host to the English, Irish, Americans and Russians, and still a few Italians ; to a lesser extent, Belgians, Swiss and Germans.

Ah, yes, the usual reprobates, and even worse:

Jean-François Dieterich puts the recent rise in Irish buyers down to tax changes in their home country.

Changed, all changed!

Chilly winds have swept down from the north:

Last summer, prices reached boiling point when Villa Leopolda, with majestic views over Cap Ferrat from Villefranche-sur-Mer, went on the market. Chelsea Football Club owner Roman Abramovich, who has several properties on Cap Ferrat, was rumoured to be interested, but then the richest man in Russia, Mikhail Prokhorov, reportedly agreed to buy it – for €500 million (£440 million). The sale would have crowned the belle époque villa the world's most expensive property. But the banking crisis set in, and Prokhorov was forced to pull out, losing every penny of his €39 million deposit. Leopolda's owner, Lily Safra, donated the money to charity.

Post-Leopolda, the French Riviera is an uncertain place. "At the present time we don't have any information about where prices are going to be," says Jean-Claude Caputo of Savills Riviera Estates . "But those who bought in the last two years would probably sell for 20 or 30 per cent less today."

No tears, please, for Prokhorov:

One of Russia’s wealthiest men, billionaire Mikhail Prokhorov, was taken into custody by French police in a crackdown on a suspected prostitution ring at a swank Alpine ski resort ...

Investigators suspect Russian call girls were brought to the resort in Courchevel, a favored playground of Russia’s rich, to work during the winter holidays, authorities said. Clients allegedly paid the women with gifts from luxury boutiques.

Although he was released, a returning Prokhorov might still be welcomed with open arms -- by the French gendarmerie.

As for Senora Safra, her worth of £650M ranks 49th in the Daily Mail rich list (here with original spelling):

Four times married philathropist
Her life has been dogged by tragedy but 'Gilded Lily' Safra hasn't lost her lustre. The socialite inherited £200 million after her second husband committed suicide and the rest after her fourth husband, banker Edmond Safra, died tragically in a fire in 1999. One of her three children, Claudio, died in a car crash. But she has settled into a life of philanthropy. Her charity donations are legendary - she once gave £8m to Somerset house. Lily, 66, has put her six-storey London house up for sale at £28m and bought a smaller place nearby. She has other homes in France, Switzerland and Monaco. Forbes puts her wealth at £650m and we agree.

Yeah, yeah: it's that "died tragically in a fire in 1999" which really plucks the heart-strings.

It's well-trodden ground, but let's hear Malcolm's swift reprise.

Edmond Safra was suffering from Parkinson's disease. He needed, and could afford round-the-clock nursing care. In the early hours of 3 December 1999, at the Safra apartment in Monaco, the two nurses on duty were Ted Maher and Vivien Torrente.

Allegedly, Maher, anxious to be the hero of the moment, staged an attempted break-in, stabbing himself for effect, then set fire to the apartment. Maher's version was he merely intended to set off the fire alarms to bring attention: it took 2½ hours for the fire service to arrive. Safra and Torrente died in the "secure" room: Lily, in a room at the other end of the apartment, escaped unscathed.

There were no security guards around: Lily had sent them to the Villa Leopolda weeks before.

Maher was found guilty of arson, and went down for ten years. Within a couple of months, he had sawn through the cell-bars and was again free. He was caught in Nice, and went back inside. In 2008 the conviction was overturned, and Maher was freed.

There is a minor branch of the galactic conspiracy industry concerned with Safra's death.

At this juncture Milady Aramintha, la Châtelaine du Knocknamuckly (who has been missing from this blog too long) would cryptically murmur:

'Tis wonderful the workings of a wheel-barrow.

Algernon Moncrieff opines:

Really, if the lower orders don’t set us a good example, what on earth is the use of them? They seem, as a class, to have absolutely no sense of moral responsibility.

So, really, you see, as with MPs' expenses, the collapse of the Cap Ferrat property bubble, and the devious doings of the rich-and-famous, it's all the fault of us peasants.

We, like Scott Fitzgerald, understand the rich but dimly. Sphere: Related Content

I can see fearfully now Seanie has gone ...

... or something ineffably daft. That's the great Martyn Turner, above, setting his imprint on the news.

Teiresias, the blind seer, was Malcolm's last-but-one starring rôle on the Irish stage (well, OK, at the open-air theatre at the back of UCD in Stephen's Green). In the original Euripidean Greek, too.

He had a speech which, in very loose translation, starts something like:

When you meet a wise man,
It isn't hard to talk sense;
But you, Pentheus,
On the other hand,
Are a pain in the arse.

Ever since, Malcolm has had regard for intellectuals who can communicate.

At the moment we desperately need a few easy-on-the-ear, quick-on-the-uptake economists who can explain why we are up the creek without a poodle.

Britain has one such in the all-knowing, all-purpose, sure-fire Robert Peston. Since Peston has been lucid and not sufficiently partisan in his explanations, he has been seen as sympathetic to the Government. Hence, there is a campaign among Tories and similar scum to blame the messenger, to make the reporter and commentator the story.

Sad.

Today's Irish Times has an analysis piece by Professor Morgan Kelly of UCD. It is available, at the moment freely, on line: do not pass Go, go straight to the goal. It is perlucid; but it certainly is not favourable to Biffo's government.

Anyone expecting the second half of the old cliché

-- Lo! be of good cheer, said the angel, for things could be worse.
And, lo! Surely enough, things were worse

will not be disappointed.

Kelly starts with a stunner:

BETWEEN COLLAPSING house prices, bankrupt banks and spiralling unemployment, you might be forgiven for thinking that fate has already dealt Ireland every misfortune in its hand. However, there may be one more unpleasant surprise in store for us, the prospect that international investors unexpectedly stop lending to the Government.

He then cogently explains the size of the problem: that the Irish Government is committed to borrowing €20,000,000,000 a year for the immediate future. Kelly quantifies the size of that:

everything [the Republic] spends on wages or on social welfare – or about 15 per cent of a falling national income.

Just as Pentheus did not want to listen to Teiresias' sage advice, so few will want to comprehend that one without a gulp or choke or three.

Kelly then lays out why this spooks the market:

• the Irish Exchequer, driven by the prospect of an ever-deepening slump, is committed to borrowing heavily at a time when the international money markets have dried up;
• the bill for that rash promise on bank guarantees (a guarantee that sparked even worse problems for the UK banks -- but both Gordon Brown and Alastair Darling are being as diplomatic as they dare about that one);
• the vicious spiral of unemployment (the equivalent of a rise of half-a-million in the UK figures -- and in one month);
• the parallel collapse of Irish government income;
• and lo! said the angel: no prospect in sight of things being better.

Then is proffered what the dramaturge or novelist would recognise as the "moment of lightening" (and, yes, that is correctly spelled). In the masterly hands of Kelly, even that comes mixed with hemlock:

The ability of the State to continue funding itself ultimately depends on the size of these [Bank-owned] bad debts. If they are of the order of €10–€20 billion, we will survive. If they are of the order of €50-€60 billion, we are sunk.

Irish banks could easily lose this much. If we suppose that most of the €20 billion lent to builders will not reappear this side of Judgment Day, along with 20 per cent of the €90 billion lent to developers, and 10 per cent of the €120 billion in mortgages, then we are already up to €50 billion.

Having chilled every spine in (and beyond) the island, Kelly walks us through the potential wreckage:

We would be forced to seek an international bailout... We could expect cuts of one-quarter to one-third in public sector wages and social welfare benefits, and draconian tax rises to bring the deficit back to around 5 per cent of national income in two years.

Like all exponents of grand-guignol, Kelly throws in just that extra frisson:

There is actually a worse scenario where international bond markets suffer a general panic... Not only does Ireland gets torpedoed, but also Portugal, Italy, Greece, Spain and Austria. The IMF and EU simply would not have the resources to bail out so many economies and we would be entirely on our own.

Kelly even gives us a villain to hiss: Brian Lenihan, who not only looks fit for the part of William Corder, but is first ridiculed for his:

boast that the [Bank] liability guarantee was “the cheapest bailout in the world so far”, an assurance that already ranks in the annals of supreme political irony alongside Neville Chamberlain’s “peace in our time”.

Then in another vitriolic comparison:

Watching the ineptitude and complacency of Lenihan’s bank bailout, we can understand increasingly how the people of New Orleans must have felt as they watched George Bush rescue their city: “Brianie: you’re doing a heck of a job.”

Does the good Professor have a negative equity problem, perhaps? Hmmm?

And the punch-line?

Well, here she comes, ready or not:

If, on top of this, we suffer a sudden stop, people will see their pensions and Government spending slashed to pay off the gambling losses of Seán FitzPatrick and his pals. The Irish social fabric would certainly rip and unprecedented civil disorder ensue.

A casual visitor (unlike all good Irishmen) might need "Seanie", Mr Seán FitzPatrick, explained. He is now the (very definitely) former CEO of Allied Irish Bank. For much of a decade, "Seanie" had been on the take: taking in excess of €122 million of "loans" from the Bank. The accounts didn't show them. The auditors didn't suss them.

When he was eventually exposed, "Seanie" was full of the milk of human fellowship:

The cause of our problem was global, so I can't say 'sorry' with any kind of sincerity.

He even had a recipe for the government to recover any losses from the AIB disaster: cut spending. Throw to the wolves the children, the widows, the minimal state health care, all and anything -- but not the bankers.

And the rot did not stop there.

"Seanie" achieved his coup through swapping arrangements with the Irish Nationwide Buidling Society, which have only been exposed in the last few hours:

Irish Nationwide gave tens of millions worth of sterling and dollar loans to former Anglo Irish Bank chairman Seán FitzPatrick as part of his loan transfers between the two institutions to conceal up to €122 million in borrowings from Anglo Irish...

The Irish Times understands the building society provided Mr FitzPatrick with loans of $56 million and £14 million on September 26th, 2007. Irish Nationwide also lent the then Anglo Irish chairman $26 million on September 27th, 2006. This loan was secured with an undertaking from Anglo Irish, meaning that the bank would repay the loan if he could not. The £14 million personal loan was secured on properties and 4.5 million Anglo Irish shares, worth €55 million at the time.

The building society had its long-term bank deposit rating and senior debt rating reduced by two notches to one level above speculative grade or “junk” status yesterday.

To lose one business, Mr. FitzPatrick, may be regarded as a misfortune; to lose both looks like carelessness.

[Anent that: Malcolm hears that a peculiarly-vicious examiner at Cambridge set the Lady Bracknell speech for translation into French. Bastard.]

A harsh critic might feel, with some reason, that Malcolm has barely risen above the nadir of fisking here. So be it.

Malcolm excuses himself that he drew attention to a good and spirited argument from a more-than-competent writer. Teiresias was blind, but spoke wisely: Professor Kelly has both good sight and his wits about him.

As they say on the streets of Tottenham: Respec' Sphere: Related Content

Whodunnit?
Who do we finger for the Crisis?

The New York Times is more than a newspaper: it is a Tardis. It expands in all dimensions, particularly at the weekends.

One 0f its delights, much missed by Malcolm in London, is the Magazine section. It is what the Sunday Times in Britain would dearly aspire to; but still, even after the latest revamp, distinctly lacks. The Sunday Morning Moan, of course, is too obsessed with its own self-importance, being unremittingly snide and exploitative of suggestive images (today's gratuitous nude is in the Culture section, linked to a review of a book by -- wait for it! -- Cocks).

The original, all the way from Eighth and 40th, owes quite a bit of its DNA (though, fortunately, not its ideology) to the likes of Henry Luce's Life. It regularly contains pieces that are too long, too extensive, too cerebral, too dependent on illustration to fit neatly into the broadsheet.

To the point, Malcolm!

This week it contains an extensive essay, The Big Fix, by David Leonhardt, on the US government and financial crisis.

Malcolm has no intention here of doing a précis of its 7,800 words: everyone worth a grain of salt will read the original for themselves. They will be amply rewarded by some perceptive insights. For one example (and this, surely, is the answer to the Cameroonies and their infantile billboards):

When the war ended, the federal government’s debt equaled 120 percent of the gross domestic product (more than twice as high as its likely level by the end of next year). The rapid economic growth of the 1950s and ’60s — more than 4 percent a year, compared with 2.5 percent in this decade — quickly whittled that debt away. Over the coming 25 years, if growth could be lifted by just one-tenth of a percentage point a year, the extra tax revenue would completely pay for an $800 billion stimulus package.

And that's only from the first page.

But the finger, Malcolm! Where to point the finger!

Well, it's hidden toward the end of the second section of Leonhardt's essay:

A crisis changes the dynamic. It’s an opportunity to do things you could not do before.

England’s crisis was the Winter of Discontent, in 1978-79, when strikes paralyzed the country and many public services shut down. The resulting furor helped elect Margaret Thatcher as prime minister and allowed her to sweep away some of the old economic order. Her laissez-faire reforms were flawed in some important ways — taken to an extreme, they helped create the current financial crisis — and they weren’t the only reason for England’s turnaround. But they made a difference. In the 30 years since her election, England has grown faster than Germany or Japan.

Yeah, well: Leonhadt is stronger on economics than politically-correct geography.

You got that, didn't you, Iain Dale, Montgomerie and gutter-mouthed Staines?

It was she what done it.

Hilda Margaret Peacock, in the Treasury china-shop, with a sledge-hammer. Sphere: Related Content

[A version of this posting also appears on Malcolm Redfellow's Home Service]

Blitzed!

Any one spared the front page of today's Times escapes this image:



Now, we all know that the Press has an agenda. It amounts to a demand for a constantly-changing cast of characters, like some continuing soap opera. Personalities are invented, built up, then slaughtered, that a new face might then be introduced to continue the drama.

Politics is treated like a Moebius strip. In Britain, though, the same side has been to the fore over more than a decade. In David Cameron the newspapers have a new leading light, one of their own, that they can recognise: the former PR man for a failed television company. He is a metropolitan face to be enhanced, photoshopped and deified: only then can his feet of clay be chipped away.

Nowhere is this more evident than in Murdoch's Morning Moan.

1946 and all that

The hyperbole in employing this image is breath-taking. There are no points of recognition between the Britain of 2009 and that of sixty-odd years previously. Repeat: absolutely none.

To suggest a neat parallel is to belittle the intellect of a reader.

It simply overdoes the doom and gloom.

Now, let's strike an equally relevant comparison. This is another image of London in 1946:

Malcolm has commented, at length, on this one before. It is as propagandist as that picture used by the Times. It is as positive and upbeat as the other is negative and defeatist.

What further irritates is that the Times story is predicated to the IMF forecast, published on Wednesday (yesterday). Now, IMF forecasts tick along with metronomic regularity: how many of us check their subsequent accuracy?

For example, last November the outlook for the UK was growth for 2008 at 1% (down from its earlier shot of 1.8%) and -0.1% for 2009 (down from +1.8%). Around the same time, the IMF was predicting average oil-prices for this year at $68 (down from a previous guess of $100): in real time, oil closed yesterday at $42 or so.

This is Mystic Meg stuff, with as much value as a fortune cookie. Just because it’s got a fancy label, doesn’t make it Château Lafite. Just because it has the IMF good-housekeeping seal of approval doesn't make it come true.

Meanwhile, in the real world, Malcolm returned from the local supermarket. Within a hundred paces of his front gate are eight -- no, count them again, nine -- tradesman's vans. Garden walls are being built. Kitchens replaced. Double-glazing installed. Blockwork is being ground for paths and driveways. Here is an electrician. There a plumber. Someone is upgrading their tv reception. It was on a Thursday morning that the gas-man came to call.

The immediate neighbourhood of Redfellow Hovel is a hive of activity, and of paid and productive labour. Sphere: Related Content

Making a mark

As a child, Malcolm added those extraordinary stamps to his small collection. They're still in his attic. Somewhere.

The over-prints told the story of the collapse of the German currency in the early 1920s. Then there are those photographs of shoppers with barrowloads of notes, hoping to buy a sausage.

Just like Zimbabwe today.

What stopped the rot?

Inevitably, since we are talking high finance here, it was a masterly piece of legerdemain. A "notional" currency was invented: the Rentenmark, nominally based on the value of the land of Germany. It was based on the assumption that 4.2 Rentenmarks were worth one US dollar. And the people of Germany, desperate for a quick fix, believed it. And so a new stability was almost constructed.

That was 1924.

Flash forward to 2009, and to the marvellous, magnificent Robert Peston's blog:

... the overnight announcement on the bailout of B[ank] of A[merica] would have been viewed as the stuff of public-finance nightmares a year ago. Today, it's almost par for the course that US taxpayers are injecting $20bn of new capital into the bank and promising to absorb most of the future losses on $118bn of radioactive investments.

Those financial commitments are peanuts of course in the context of $14,000 bn-and-rising of financial support that taxpayers have provided to banks all over the world. What's gone wrong with our banks is without historical precedent - but then, you knew that.

Actually, young Robert, -- gulp -- I hadn't kept count.

But, "without historical precedent"?
No: it's merely a case of convincing us plebs to believe. Sphere: Related Content

Economics? Not needed on voyage!

Malcolm suggests, swallow hard and read this:

White House Predicts $482 Billion Deficit
By ROBERT PEAR and DAVID M. HERSZENHORN
The White House predicted that President Bush would leave a
record $482 billion deficit to his successor, a turnabout
in the nation's fiscal condition from 2001.
..................

Candidates Return Focus to Economy and Jobs
By LARRY ROHTER
As the candidates emphasized bread-and-butter issues, John
McCain's surrogates attacked Barack Obama's meeting with
prominent economists.

Straight, two successive tasters, from the morning's email of New York Times headlines.

It will need a very large intake of coffee before Malcolm feels strong enough to read the small print. Doubtless the detail is not so contradictory as the headline.

Even for an economy the size of the US, a deficit of that size suggests counselling by trauma-therapists as well as mere economists.

It begins to look like déjà-vu all over again:
send for the liberal tax-and-spenders to clean up the mess left by the conservative balanced-budgeters
(as with the FDR, Carter and Clinton Presidencies; and the incoming Blair-Brown government in Britain).

Still, it raises the question:
Can conservatives be trusted with the economy?

Sphere: Related Content

The tiger catches cold?

All sorts of goings-on at Redfellow Hovel have got in the way of serious blogging. Normal service may be about to be resumed. However, the family hooley would have been as nothing in comparison to the weekend hyperactivity chez Brian Cowan, Tánaiste and Minister for Finance. It would indeed be instructive to know what his briefings were on the potential collapse of the property market, the associated down-turn of consumer expenditure, and the health reports on panthera tigris economica hiberna.

Nevertheless, Malcolm starts with an important piece, Soft options will cost us dear, in yesterday's Irish Times, by Michael Casey, formerly the chief economist for the Irish Central Bank, and now a board member of the IMF.

Casey gives a stinging critique of successive RoI governments’ tendency :

to adopt soft-option policies whenever possible ... the line of least resistance ... to maintain the status quo.

He is looking at the Republic, but Malcolm feels a qualm that it might equally be a warning about the parallel developing culture in Northern Ireland:

Most important decisions on Irish life are now taken not by Irish governments but by the EU and the US. At one bound Ireland has gone from one colonial master to two others. We now have no control over a large swathe of social legislation, domestic interest rates, the exchange rate. We have less control over the fiscal policy and, because of the US multinationals, little effect on the supply-side of the economy. And deep down this is exactly how we want it because it protects us from the burden of decision-making…

It is ironic that we have more Ministers than ever at a time when the need for political decision-making has virtually disappeared. The notion that the government ‘runs the country’ is absurd.”

Casey argues that populism leads to:

Clientism and stroke play [which] run counter to the notion of excellence, hard work and real decision-making. Short-term political strokes also give rise to a culture of petty corruption which is bad for business especially in a global environment. The emergence of real entrepreneurship has been impeded by strokes and wheezes. Entrepreneurs are supposed to take risks, not operate on the risk-free basis of inside information.

His punch-line is devastating:

Social partnership can be viewed as a soft-option policy. We cannot afford strikes because they would discourage US investment here. So, under the guise of social partnership income taxes are reduced to keep the unions happy. Governments make up the revenue through stealth taxes. The irony is that as a result of all these convolutions wage growth bears no relationship to productivity, is excessive by international norms so that the national competitiveness is being eroded all the time and inflation is much higher than it is abroad. We are too clever for our own good.

Now that the economy is weakening and tough decisions may be called for will any government be able for the task? Not a chance. Already the Government is preparing to go down the soft-option road of borrowing yet again. In any case, because of low skills levels, there is no analytical apparatus to facilitate real problem-solving. Spin has replaced that. Irish governments never matured into fully-fledged decision-making executive bodies and now it is too late.

There is obviously more than an element of partisan special-pleading here. Casey has been saying much the same for some years. All technocrats believe they could direct the economy better than innumerate politicians (and, Malcolm says, heaven help us when that happens). Casey may well have a point about the competence-deficit in the higher echelons of the Irish Civil Service (though, when the stars show up -- T.K.Whitaker, the Cruiser, Martin Mansergh -- they are truly of celestial quality).

Equally, this is Casey's "ranging-shot", in anticipation of what Frank MacNally anticipates as today's "tough budget". McNally, in passing, does a nice piece of verbal pyrotechnics in An Irishman's Diary, linking the budget with the death of Evel Knievel, whom McNally concludes:

achieved the most that gravity-defying stunt men and tiger economies can hope for, which is a soft landing.

The 'tiger economy' is based on two feet of clay: a young, high-skilled, flexible and (as Casey noted) quiescent work-force, and a constant source of foreign investment. The former needs regular refreshment (and a willingness to discard skills no longer relevant, which bodes ill for the older worker), so watch for education and training being ring-fenced in any spending constraints. The later is the great unknown.

The Republic's economy is in hock to a small number of powerful multi-nationals. Dell, all on its own, is 4% of Ireland's GDP. Gulp.

Malcolm does not have the latest facts at his finger-tips, but he recalls an article by Martin Sullivan which considered the period 1999 to 2002 (the tiger's loudest roar). In that short time-frame Sullivan found that profits made by US companies in Ireland doubled from $13.4 billion to $26.8 billion, while profits in most of the rest of Europe fell. In his analysis Sullivan termed Ireland a 'semi-tax haven' for US firms. Dell was having its patent royalties rendered through Ireland, to a total of $91.7m in retained profits, none of which was subject to tax under Irish legislation. Microsoft was up to the same trick, to the tune of half a billion dollars.

The result? Well, try this:
That's today's CSO report on earnings, hours and employment costs. It tells us that over the last financial year:

• Average hourly earnings were up in the financial sector rose by 11.7%, but up 5.9% (which is still pretty inflationary) in the industrial sector.
• There were 5,000 more jobs in finance, but nearly as many lost in industry and manufacturing.
• The financial sector (labour costs totalling €4,862 million) is now worth nearly half the whole industrial sector (€10,829 million).

Meanwhile, last month 2,387 Irish workers were laid off - a rise of 15% on the same month in 2006. Another graph which is not just decorative:

Remember: that's historical. At least two of those lines have since headed precipitously south. As if to prove that, here's just this morning's news:

Nearly 500 people face losing their jobs when one of the State's biggest multinational investors closes a manufacturing plant in Galway next year.

Pharmaceutical and medical devices group Abbott told workers at its Galway facility yesterday it intends closing the plant as part of a plan that will see it cut about 1,200 jobs worldwide.

There was a third item in yesterday's Irish Times which is also relevant here: a letter by Alan Dukes (a former Finance Minister, remember) on health policy. Not surprising, from a Fine Gael man, he deplores that there is no consensus on health issues in Ireland. He continues:

In a wide range of contacts with professionals involved in the delivery of health services ... , with suppliers of services to the system and with people who rely on it to provide them with health services, I have found widespread doubt about the system's ability to deliver and innumerable examples of failure.

Healthcare is the other cost of a "tiger economy". let's memorialise it yet again: 49% of the Irish population are covered by private health insurance; the GMS health card provides free (but limited) care for something like 20% (including children). So perhaps a third of the population has no health cover at all. Throw in the cancer-care scandals, and now the shortage of TB-inoculations, and it is amazing that Mary Harney is not burned in effigy (hopefully, only in effigy) on a daily basis.

So, over to Brian Cowan presenting his budget this afternoon ....
__________________________________________________

And Malcolm got through that without using the word 'kleptocracy' or mentioning the Tribunals at all. Well done, Malcolm!
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Change is coming

When the world was far younger, Malcolm started to point out the bleeding obvious.

He observed, like many others, that the Northern Ireland economy, as presently constituted, underwritten and subsidized, was completely unsustainable in the New Dispensation. There is nothing original in that point of view.

Only two things have kept the thing going:

• the sheer gritty determination of Westminster (under both Tory and Labour Administrations) not to give up on a basket case; and
• the ineffable insouciance of the English (yes, English) tax-payer about all things Irish.

The Economist (Gawd bless it!) came on board last May:

Over the 40 years of the troubles, the place has become a subsidy junkie that receives from Westminster £5 billion ($10 billion) more than is raised locally by taxation. More than a third of the 770,000 people in jobs are directly employed by the public sector (which accounts for nearly two-thirds of economic output), while half a million are officially classified as inactive. Part of the problem is the scarcity of private-sector investment, which is crowded out both by the omnipresent state and the large black economy that “peaceful” paramilitaries on both sides of the religious divide hold sway over.

Even the ranks of Tuscany...

Now even the Belfast Telegraph is recognising the inevitable. Barry White was doing a useful piece, All you need is, er, lots of State cash, in Tuesday's edition. He was reading the runes in the pre-Budget statement:

The Times had an interesting table last Thursday... Headed 'state spending as a proportion of national or regional income, 2007 estimates', it had Northern Ireland far and away the winner - or loser - with 70.5%.

That means that £7 out of every £10 in the tills of every shop or supermarket originated from the taxes or borrowings of the UK government, meaning the British people. Wales was next, with 64.3%, the North-East with 64.3% and Scotland was fourth with 55.6%.

In the UK as a whole, the percentage was 44.1%, the same as Germany, which represents a rise of one-fifth under new Labour, and that's lower than France, 53.2%, Sweden, 52.4%, Denmark 50.1% and Italy 50%. But it's way ahead of Spain 38.5%, Japan 38.4%, USA 34.9% and Ireland 34.1%.

Malcolm has mentioned before his historian daughter's definition that a happening becomes an "historical fact" only when a quantum of recognised historians have cited it (and the corollary is that n=4). Similarly, the trigger for, at last, recognising the mendicant status of Northern Ireland is the magic number of £10 billion a year.

It may be that the most significant moment in Chancellor Darling's statement last week was:

Mr Speaker, I can also set out the total settlements of the devolved administrations in Scotland, Wales and Northern Ireland giving them their full entitlement:

Scotland rising to £30 billion in 2010;

Wales rising to £16 billion; and

Northern Ireland rising to £10 billion.

This is in addition to spending in Scotland, Wales and Northern Ireland that is not devolved – like defence, tax credits and pensions – that benefit all parts of the United Kingdom.

Here begins the real debate on devolution.

This time, it may be the English 83.8% evaluating the worth of the 8.4% Scots, 4.9% Welsh and 2.9% Northern Irish in this mystic Union. Just as (and Malcolm thanks Bob Mitchell for this one) it was the dollar-a-day Irish immigrant who rendered the "peculiar institution" of slavery uneconomic, so it could be the reluctance of the English taxpayer to continue financing the Union which brings about the end of the Saxon Empire. In the circumstances, Malcolm would not recommend this as the moment for too loudly asserting "Scotland's oil": be careful lest you are granted your wish.

Liberal economics reach the Belfast Telegraph

White's article continues with a just comment on relative "success" in the local economies. He borrows the free-market economist view (which he ascribes specifically to the Times, but no matter):

the less reliance there is on government intervention, the better regions and nations perform.
Wherever the best salaries and security are to be found in publicly-funded employment, and the state picks up the tab, the rest of the economy will struggle to compete.

Then he brings the issue home in a powerful way:

we have to devote far more of our effort not only to devising incentives to businesses big and small, but to cut the public sector down to a size more appropriate to a small region. The trouble with devolution is that although it means politicians taking on more responsibility, it also encourages them to spend, spend, spend on unnecessary administration and projects that make them feel more important.

He makes two further points:

• an Assembly of 108 members, of whom nearly half qualify for extra payments, 11 departments (which become a round dozen when justice and policing is added) and 26 councils represent far too much government even for a divided Northern Ireland. We can't afford to duplicate everything, like Belfast's leisure centres, so that politicians get elected.

and

• It's up to the Executive - which has issued just two statements, on flooding and foot and mouth, in six months - to reach difficult conclusions, soon.

There's the end of any Stormont honeymoon, then.

It's a hard life, being a well-paid politician

It's the delegated duty of the political leader to go from heroic champion to national scapegoat in one easy stride. We elect them because we need both the leader and the whipping-boy, and it saves time to combine the two rôles. Similarly, it is the chosen duty of the tabloid press to mark the moment of transition from one state to the other.

That, of course, disguises the true matter. It isn't just the administrative structures which are over-engineered to our needs. Freeing-up the economy is a "big bang", not a political squib.

White is wrong to make the simplistic parallel:

the comparison between Northern Ireland and the Republic is staggering - 70% compared to 34%, as bad as the differential in corporation tax paid by successful companies, 30% here and 12.5% in the South. No wonder all the economists, and politicians, are adamant that the only way to achieve the 'step-change' in our prospects was to find a way of closing this gap.

That ignores the other parts of the tax equation: VAT at 21% for example, and missing ingredients like the cost of health insurance.

Again, be careful what you wish: you may get it.

Malcolm would want to take the debate a stage further.

The second law of thermo-dynamics

The danger for Northern Irish politics and political economy is a drift into entropy. Indeed, that is the consummation devoutly wished by most: a dissipation of energy from the centre into ineffectual generality.

We have had too much excitement in the last generation:

• We now want a normal "quiet" life.
• We have an octogenarian First Minister who, naturally, wants a measured, orderly and respected end to his glittering career.
• We have a Secretary of State who is competent but unscintillating.
• The poraille of Assembly members is still amazed at ascending to such respectability and glory.

There is a general lack of initiative, a sense of walking on egg-shells. Play it straight; play it quietly; play it long. Things can only get better. Enjoy the moment. Every day, in every way, I'm feeling better and better.

Not.

Robinson

Into the mix we have to toss Peter Robinson's well-trailed speech to "former colleagues on Castlereagh Council". That in itself rings a bell. When Malcolm, in his days as a Parliamentary Candidate, needed an instant press release, he would declaim his prejudices to his long-suffering lady-love across the dinner table. In the interests of truth and weekly journalism, this automatically qualified as "Speaking to a meeting in X Ward ..."

Robinson seems to be hitting the right buttons:

an economy that creates wealth not merely one that consumes public spending... The system of Government in Northern Ireland also needs reform... it may be necessary to build confidence in the process before more radical changes can be delivered [but] I hope that change will not be too long delayed.

And, cryptic, but most noticed and most significant:

A four party mandatory coalition with no effective opposition is not in the best interests of decision making in Northern Ireland.

Malcolm is aware that Robinson sees himself as the coming man, perhaps even a man who has waited too long already. At this moment Malcolm is averse to commenting here on the subsequent CTI kerfuffle, which is not relevant to the wider issue (and is constantly developing). However, all in all, we are left with queries about Robinson's speech: why? why now?

An unkind answer is provided by Margaret Ritchie (note caveat above):

Miss Ritchie ... said that Mr Robinson seemed to think he personally ran the Assembly.

That should achieve Robinson's presumed ambition; to be number one in a two-party parliament: just like that other nice bigot, James Craig.

Time for tea

For the moment, the questions and answers to any debate on Northern Irish development rest in the six counties. That will not last long.

In short order, we can expect further (and, for Northern Irish politicians, unwelcome) interventions from outsiders, those 83.8% of the people who foot that £10 billion bill.

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