Friday 30 July 2010

Good GDP, Bad GDP

It is clear that the underlying problem affecting Wales' potential viability is the under-performance of the Welsh economy, and that to address that, we need to improve the level of GDP per head. But not all GDP is 'good' GDP; there are good ways and bad ways of increasing Wales' GDP, and chasing growth per se will not necessarily provide a sustainable long term economy for our country.

As an example, I'm sure that the oil spill in the Gulf of Mexico has led to an increase in GDP in some areas, as people have been employed in clean-up operations, in extra drilling operations to set up a relief well, and in manufacturing a 'cap' for the well head. Similarly, a major nuclear accident would boost GDP in managing the clean-up after the event. But I don't think anyone would seriously suggest that an oil spill or a nuclear accident would be good things for Wales.

It's even more subtle than that. When people think of creating wealth, they often think in terms of boosting manufacturing industry, and indeed, the front page of today's Western Mail draws attention to the slump in manufacturing in Wales. There's a problem with manufacturing though – making stuff almost invariably requires raw materials, as well as using environmental resources, and in the developed world, we are already using more than our share of both of those.

That doesn't mean that we don't need manufacturing, or that we should simply depend on other people doing the manufacturing, of course. The raw material cost and the environmental cost is still down to the ultimate consumer rather than the manufacturer; we don't escape those costs by simply 'exporting' manufacturing to India or China.

But we cannot continue to seek economic growth based primarily on an unfair share of the usage of finite resources, and there is no evidence to suggest that increasing efficiencies in the use of resources will square that circle.

'Good' GDP is GDP which requires no extra use of raw materials or environmental resources, or which involves investment in restoring the earth's environmental systems. It's likely to be more service based, more labour intensive and less profitable in the traditional sense.

Are we ready to embrace that sort of future, and accept that it means building a different type of economy?

Thursday 29 July 2010

Half a cheer

I've never been a fan of ASBOs. Like so much of what New Labour was about, they were, first and foremost, a gimmick. They played well with people who were experiencing real problems, and it is too easy for those of us who never liked them to forget those very real problems. But I was never convinced that they were particularly effective, and they often became something of a badge of honour in some circles.

In some cases, they were used to deal with behaviour which was actually criminal, as a substitute for using existing laws; and where they were used in cases of non-criminal behaviour, breaching them could lead to jail - in effect jailing people for something which was never a criminal offence in the first place.

So my first reaction to the announcement that they are to be killed off was positive. But the small print is missing, and I'd like to see it before getting too enthusiastic, since the Government seem to be talking not so much about abolishing them, as about replacing them. And they have yet to spell out how.

Talk of communities working with the police sounds all well and good; but that is nothing new; it happens to a great extent already. (Although it does involve the police spending a lot of time in liaison and discussion sessions. Given some of the other statements made by the Government, it's hard to believe that they're proposing more of that, but the bottom line is that 'working with communities' involves a serious commitment of time and resource.)

The other strand of what the Home Secretary said – 'giving the police the powers they need' – worries me rather more. I'll give them the benefit of the doubt until they spell it out; but my first reaction was that it sounds like ASBOs without the controls and checks provided by the courts etc. And that, applied to activities which are not criminal in the first place, would be a huge step backwards, not forward.

Wednesday 28 July 2010

The quiet man

Generally, the most effective criticism is not that delivered vituperatively or in anger, but that delivered in calm, quiet, measured tones. Hans Blix gave us a beautiful example yesterday in his evidence to the Iraq enquiry.

His killer line was when he said that he didn't doubt the good faith of Bush and Blair, but "What I question was the good judgement". This was a man who was closer than anyone else to the key question of whether there were or were not WMD in Iraq, and to hear him confirming that he had explicitly and personally warned Blair, before the invasion, that there might be none to be found was extremely damning. It confirms that Blair knew that the 'dodgy dossier' might well not be correct, but chose to ignore any evidence which didn't fit with the view which he and Bush had already formed.

Dr Blix is a Swede of course. His country has a long and honourable tradition of providing men like Dr Blix who will look at the evidence carefully and thoroughly from an objective perspective rather than being bullied into agreeing with the US government. It's the sort of contribution which many of us would like to see Wales making to world affairs, rather than being dragged into illegal wars on someone else's coat-tails. Might isn't right, and long may there be people like Dr Blix to tell us so.

Tuesday 27 July 2010

Electing the police

Police Authorities are not exactly the most transparent of organisations. A large part of the membership consists of councillors appointed by their own local authorities, but the remaining members are appointed by means which are something of a mystery to most.

The idea that there should be more openness and accountability, which is what lies behind the government's proposals for elected commissioners is one which I think has a lot of merit. But agreeing with the principle is not the same as agreeing with the proposal.

Electing a single Police Commissioner for each force will, I think, inevitably politicise policing, and it will put all the power into the hands of one individual on a winner takes all basis. Directly electing a representative police authority, on the other hand, would create a body which would still have party political representation on it, but would also represent a wider spectrum of opinion in the area covered.

And my first reaction to the idea that any increase in the police precept would have to go to a local referendum is that it sounds to me like a recipe for an annual referendum on the police budget. Some might argue that to be a good thing; but why single out the police? Holding an annual referendum on the level of one form of taxation is a genie which I suspect they'd regret releasing from the bottle.

The Labour response to the proposal seems to centre around the idea that we shouldn't hold an election because the wrong people might win it. Whilst Gordon Brown might be wishing he'd thought of that one earlier, I really don't think that stands up as a reason for opposing what is being proposed.

This is, however, a proposal where the 'Welsh way' might well be different. We've called for devolution of policing before, and that would give us an opportunity here in Wales to consider an alternative approach.

Monday 26 July 2010

War on Safety

I'm sure that there will be some who welcome yesterday's news that the UK government is going to scrap the funding for speed cameras in England and Wales. I am not one of them. And the wording of the announcement was disingenuous to say the least.

What they've actually done is to cut the budget for road safety, and to describe that as 'ending the war on motorists' is stretching credulity more than a little. It's a populist turn of phrase of course, but I've never understood how using modern technology as a cost-effective way of enforcing the law and protecting the majority of road users from the irresponsibility of the few can be described as a 'war on motorists'.

I don't doubt that there are some motorists who feel aggrieved when they get caught because their speed has crept above the limit, but we have a stretch of road near us where we take our lives into our hands on a daily basis because an irresponsible minority think that speed limits and double-white lines only need to be obeyed if there is a visible police presence. Or a camera. We've had one car written off already (no serious injuries fortunately), and any number of near misses.

I worked for one organisation where meetings regularly started late because one or other participant already had 9 points on his licence (it was always a 'he') and couldn't afford to drive fast enough to get there on time. The idea of setting out earlier seems to be an entirely alien thought to that sort of driver.

It is entirely legitimate to campaign for changes in speed limits (in either direction), but I do not regard it as legitimate to campaign against enforcement of the law. Unenforced laws are simply pointless. Nor do I regard it as somehow 'unsporting' to use technology where appropriate as part of that enforcement.

I'm convinced that traffic enforcement cameras can and do save lives, and that we need more, not less. Ending the 'war on motorists' may turn out to be the start of a war on safety.

Friday 23 July 2010

Moving further on

Most candidates who have fought and lost an election will be familiar, I am sure, with the way that frenetic activity and high profile turns into peace and anonymity almost instantly. People are apparently hanging on your every word one day, and ignoring you the next. C'est la vie.

The immediate aftermath of an election is therefore not the best time for reflection, nor for deciding what comes next. Putting a bit of time between myself and the election, coupled with a week away, means that I'm in a much better position to decide rationally where to go next.

This week, I resigned as National Chair of Plaid Cymru.

There are a number of reasons for this decision, mostly political, and some personal. It's not as sudden as it may look to some; it's something I've been pondering for some time, and after eight years in the role, some recent events have led me to decide that now is the time to make the change.

At a personal level, I have reached the point where I can no longer afford to put so much of my time into activity which generates no income; I need to refocus that time on activities for which I get paid. I've effectively been working on only a part-time basis since 2006 in order to put time and effort into campaigning in Carmarthen West; with that imperative removed, it's time for that refocussing.

But it isn't as simple as just the personal and it would be dishonest of me to pretend that it is; there are some significant political reasons as well. There are a number of ways in which I feel that the party has moved, or is moving, in a direction which I cannot support, but being a national office-holder has fettered my freedom to say so.

Even internally, my role has often been more about moderating and managing debate than participating in it. And whilst some people (hopefully) might regard me as having been a reasonably effective manager of the party, it was never the mechanics of party organisation which got me involved - it was about a different vision of the future. And in that area, I think we have a few problems.

Insofar as I have a contribution to make to political activity in the future, given my advancing age, I intend it to be very much more political than organisational.

Thursday 8 July 2010

Struggling with the spin

It's fun to watch the Lib Dems and Tories struggling to explain why it was absolutely out of the question to hold the Assembly powers referendum on the same date as the Assembly election, but there's no problem at all with holding the AV referendum on the same day.

The line was that the first was impossible because it would have meant cross-party co-operation for the referendum whilst parties were opposing each other for the election. But as long as the referendum is on a UK-wide issue, that problem somehow disappears. It's a flimsy and weak attempt to cover up the fact that they are standing on their heads.

I just don't understand either why the AV referendum has to be rushed or why the Lib Dems in particular are getting so hung up about it. On the first, there'll still be four years to go before any decision arising from the referendum has to be applied - plenty of time to hold a considered referendum without cutting across Welsh and Scottish elections.

The second is just perplexing. AV is not the system favoured by the Lib Dems, and isn't proportional. And yet it seems to have been one of the key factors in persuading the Lib Dems to go with the Tories. The Tories bought them with a promise of a referendum on something that they don't really want, whereas Labour were only prepared to talk about a referendum on something they don't want.

And now that they have the Tories' commitment to holding a referendum on something that they don't want, it seems to have become key to the continuation of the coalition that the referendum on the thing that they don't want is held as quickly as possible, so that if they don't get what they don't want, they have an opportunity to walk away from the coalition as soon as possible.

Politics is strange sometimes.

Wednesday 7 July 2010

Viability depends on GDP

A comment on a previous thread raised, once again, the old chestnut about whether Wales is viable or not as an independent country. My response was to say that the issue is a complex one, but I'm quite prepared to agree that, as things stand, with the current level of GDP per head in Wales, we could not afford the current level of public expenditure within the current level of taxation.

I think that that is probably a fair statement to make; but it does not prove, as opponents of independence might argue, that Wales is therefore not viable. Nor does it prove that Wales would either have to slash services or increase taxes dramatically if we were independent, which is the other common attack.

The point is that there were three variables in the statement I made, not two. The most important one is the part about our relatively low GDP; increasing that is key to our long-term viability as the sort of society in which most of us would want to live.

I don't think it's entirely fair to say, as some of my colleagues sometimes seem to be claiming, that Welsh GDP is at a low level as a deliberate result of the policy of successive governments; but the only part of that phrase that I'd delete is the word 'deliberate'. I don't think that anyone can really argue with the proposition that relative inequalities between different parts of the UK must be the result of the policies pursued by different governments, even if they were not the intent of such policies.

What I have never understood is why opponents of independence continue to rely on the relative underperformance of the Welsh economy to justify their stance rather than put all their efforts into eliminating that under-performance. Why wouldn't even the staunchest of unionists want to see Wales at least equalling the UK average?

Tuesday 6 July 2010

Economic Renewal

I've never understood why governments can't write reports and strategies in simple clear language, and keep them brief while they're at it. Perhaps they just don't want people to read the actual documents, just listen to the spin.

The Economic Renewal document published yesterday is a case in point. The core of it – which could probably have been written in considerably less than half the number of words actually used – is a quite exciting departure from traditional economic policy in Wales. So why, oh why make it so lengthy and difficult to read? There's just so much unnecessary verbiage (and if you want a classic example, try the definition of innovation in the second column on page 30!).

I have a personal dislike of 'taking forward agendas' as a phrase; I suppose that it's intended to sound dynamic, but the phrase doesn't do it for me. And this document is full of taking things forward - agendas, actions, lessons and challenges - they're all going to be 'taken forward'.

Enough of a rant; down to the substance. I entirely welcome the shift from seeking to attract increasingly scarce footloose multi-nationals to growing and nurturing our own companies at home, as well as the shift from a grant-driven culture to an enabling approach.

It has often seemed to me that senior business people in Wales have been quick to criticise the 'dependency culture' when it applies to people receiving benefits, but demand more of it when it comes to grants to businesses. A simple market approach says that if a business isn't viable without a government handout; then it just isn't viable.

There is a 'but' of course. Wales has been using grants (to the dismay of some English regions which haven't been able to match them) to give us an edge over other areas, and it remains to be seen whether removal of that edge will damage Wales. Given that the Welsh economy has still lagged behind, despite having that advantage, I'm not convinced that it actually gave us that much of an edge in the first place.

The Welsh government has done a lot already, and is planning to do more, to roll out an advanced broadband infrastructure in Wales. They shouldn't really need to, of course, and it grieves me to see taxpayers' money going to large companies like BT which ought to be making this investment themselves. I'd personally prefer to see a much higher level of public service obligation placed upon them; but since we don't have the power to do that, and it isn't going to happen any time soon, it's better for us to spend the money and get on with it than not. It just means that that money is not then available for other projects, sadly.

The idea of trying to focus attention and support on those industries and areas where we particularly want to see development is one I welcome. It is, of course, in line with what Plaid were saying in our Economic Plan back in the late 1960s, and as far as pro-active activity is concerned, it has to be better than a scatter-gun approach. Whether they have hit the right sectors is a moot point, which I'm sure that some will argue with. I'd hope that that is something that can be reviewed over time.

The test of the strategy will come when difficult decisions have to be taken. What happens if a significant employer gets into difficulties and starts asking for handouts? What happens if a business not in one of the target sectors is seeking assistance? There's no easy answer to this sort of question, and only time will tell, but at least the government now have a framework in which to consider them.

PS. One thing slightly alarmed me in the document, although it wasn't directly related to the economic strategy as such. At the bottom of page 25, there is a reference to "the introduction of a clear and transparent fees policy for post-16 education and training". Fees for post-16 education?? A mistake, surely.

Monday 5 July 2010

Still at it

According to yesterday's Sunday Times, 3.5% of the market value of FTSE100 companies has been lent to hedge funds to be short sold in an enormous bet that share prices will be falling. It's not as high as the 5% which was on loan during the financial crisis in June 2008, but it's still an awful lot of shares.

The short-selling game means that the hedge funds who have borrowed the shares sell them for one price and then buy them back at a lower price before returning them to their rightful owners, and pocketing the profit. Well, actually, they profit most of the profit; part of it goes to the Conservative Party, and part gets paid to the people who loaned them the shares in the first place.

But if they've made a profit, who's made the corresponding loss? After all, when it comes to share-trading, every profit must be balanced by a loss somewhere. The answer is that the owners of the shares – often pension funds, which effectively means an awful lot of us - have made the loss; they loaned the shares when they were valued at one level, only to get them back when the price has fallen. The total value of their assets has fallen by the difference.

Well, not quite. Because the hedge funds have paid them a small 'rent'; a share of the profit for the loan of the shares. So their loss is less than it would have been if they hadn't loaned the shares out. From their point of view, it's an apparently rational decision, because if the price was going down anyway, then they may as well mitigate the loss by taking at least a share of the profit made by the short-sellers.

But the really big question is whether the price would really have fallen anyway - to what extent are short-sellers simply betting on something that would happen anyway, and to what extent is the volume of selling which they do actually influencing the price on which they are betting? The greater the volume of shares that they can sell, the greater the influence they have on the outcome.

If they are influencing the price by their selling, then the action of those who lend them the shares to sell becomes a great deal less rational; they are then, after all, creating the loss which they are seeking to mitigate. They'd still do it though, for the simple reason that if others do it and they don't, then they still get hit by the losses but have none of the mitigation, and that affects their overall financial performance.

The practice is crazy when it's just betting; but it's insane if the people creating the losses are doing so deliberately purely because everyone else is doing it, and they can't afford to be left out. It's more Prisoner's Dilemma than roulette. 3.5% sounds like a small proportion, but it's enough to drive prices rather than simply bet on them.

Short-selling does not create wealth – it simply redistributes wealth from the many to the few. It should be outlawed.

Thursday 1 July 2010

Wealth, profit, and GDP

When I was at business school some years ago, one of the lecturers gave us a little demonstration of the difference between personal and collective wealth on the one hand, and GDP on the other. He took a £10 note from his wallet, passed it to the first person in the class, and asked that it be passed around from one to the other, until, after going through 20 pairs of hands, it returned, safely, to him.

His point was a very simple one, that if we assumed that the only money in the room was that solitary £10 note, then 20 separate transactions hadn't changed the amount of total wealth in the room by a single penny. It hadn't even made any of the individuals in the room any less wealthy or more wealthy than they had been at the beginning (although one bright spark did try to get away with only passing on £9.95 so that he could keep 5p profit…).

But the 'GDP' of the lecture theatre, during that few brief minutes, had been £200. And the fact that some of us worked in the private sector, and others in the public sector, hadn't made any difference to our contribution to 'classroom GDP'. GDP isn't the same thing as personal 'wealth', or even total 'collective wealth' – it's more a measure of how many times, and how quickly, money circulates in an economy.

What would have made a difference, though, would be if we had passed that £10 out through the window to the guy who happened to be cutting the grass at the time. It would still have continued circulating and adding to total GDP, but it would have stopped being counted as part of classroom GDP. And the lecturer as an individual, and the people in the room collectively, would have been £10 worse off as well.

It's an analogy for one of the reasons for the under-performance of the Welsh economy. Any economy with a disproportionate number of jobs in organisations whose headquarters are elsewhere will inevitably end up passing some of its wealth and GDP out through the window.

Interestingly, when the UK government passes some of it back to us, it's always called a subsidy or a handout.