Double-edged swords

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One of the arguments often used by opponents of membership of the EU is that the UK could compete more successfully in the world if it was not subject to EU rules on issues such as employment law.  Flexibility in the field of employment, runs the argument, makes it easier to attract inward investment. 

Despite the harmonisation which has taken place, there are still differences in employment law even now; the UK labour market is more flexible than the labour market in say Germany or France.  Whether that’s a good thing or not is a matter of opinion, but I’ll accept that, when it comes to attracting inward investment, perceived flexibility is more advantageous than perceived inflexibility.  It’s a double-edged sword, though.  That which makes it easier to attract some types of investment also makes it easier for the same companies to disinvest. 

One very current real example is the proposed take-over of the European arm of General Motors by the parent company of Citroen and Peugeot.  It is likely to lead to a degree of rationalisation as the various parts of the company are brought together – and that may lead to redundancies or even plant closures.  For political reasons, they may not be immediate, but over the longer term, they are highly likely.  Faced with a choice of closing plants in Germany or the UK, which are most likely to close?  Well, one of the results of the UK’s much-vaunted ‘flexibility’ in the labour market is that it’s actually much easier and cheaper to sack workers here than it is to sack them in Germany.

More generally, whilst Germany has not been immune to the trend which has seen manufacturing jobs move overseas, it has been less badly impacted than the UK.  Whilst it would be a mistake to attribute the whole of this to a single factor, the relative ease with which manufacturing plants can be closed in the UK is undoubtedly one of the factors underlying that difference.

It would be over-simplistic to argue that continued membership of the EU per se is enough to provide job security for UK workers, although it is one of a number of cases where further harmonisation of rules across Europe would help.  But there is, after all, nothing to prevent a UK free of so-called ‘Brussels interference’ from implementing its own rules to protect UK jobs.  But it would be naïve to believe that that is the how the Brexiteers intend to operate their new-found ‘freedom’ to make our own rules.  Creation of an offshore tax haven has more to do with removing workers’ rights than enhancing them. 

When they come to write future history, people will surely marvel at how easy it was to persuade those who stood to lose most from deregulation to support it so enthusiastically.

Red meat and red tape

Tweet One of the important questions thrown up by the horsemeat scandal is the question of the extent to which the food industry should be regulated and monitored. In that sense, there's a parallel with the banking crisis; in both cases what happened was only able to happen because of a 'light-touch' approach to regulating and monitoring.

In both cases, the extent to which the government and its agencies actively monitored what was happening – and the resources available to do the monitoring – were scaled back as a deliberate act by government. Whilst those being regulated were only too glad to be rid of another 'burden' of red tape, and whilst government could argue that reducing that 'burden' was a good thing for enterprise, the effect, in both cases, was to open the door to the crooked and the unscrupulous.

And that's the problem that I always have when I hear politicians – of all parties – bemoaning the amount of red tape and regulation with which businesses have to conform. Whilst there are extreme examples of silly and petty interference, most of the regulation is there for a reason. It protects consumers, the workforce, or the environment.

Trusting businesses to follow the rules when they're not being watched has been demonstrated not to work. There will always be some who see an opportunity and take it. (And I wouldn't be at all surprised to find out, in a few years time, that some of the organisations being feted today as 'successes' are actually up to similar misdemeanours – after all, the UK's banking sector was a huge 'success' until they were caught out).

It probably looks very unfair to those businesses and organisations which follow the rules that they have to be regulated and monitored just in case someone else is cheating, but there isn't really much alternative. Businesses, and capitalism in general, have shown that we cannot trust them to behave, and if we cannot trust them all, we have to monitor them all. And actually, although it may be a pain for those honest people dealing with the regulations, it protects them as well – from unfair and dishonest competition.

The next time we hear anyone talking about cutting red tape and regulation, we need to demand to read the small print.

Bankers and Bonuses

Tweet About 25 years ago, I attended a briefing session about the then government's plans to privatise the organisation for which I worked, or rather on the opportunity to buy shares on special terms. The person doing the presentation had explained it all, including the role of the merchant bankers involved.

When it came to questions, a bluff plain-speaking engineer who originally hailed from London prefaced his remarks with the comment that he'd always thought that merchant, as an abbreviation for merchant banker, was cockney rhyming slang. He wasn't being complimentary, of course.

In those days, before the Tories had deregulated financial services, merchant banking was kept very much separate from retail banking, largely so that retail banking was not exposed to the higher level of risk which merchant bankers were able to take. It was a wise and sensible separation. Had it still been in place today, I suspect that the government could have allowed some of the risk-takers in the merchant banks to bring their businesses tumbling down - and the retail banks on the high street would have needed no consequential bail out.

One of the other differences between merchant banks and retail banks was that there was a culture of high levels of performance bonuses in the merchant sector, but this was uncommon, to say the least, in the retail sector. That's another distinction which has been blurred, and now it seems that the bankers (I suppose I'd better not call them merchants) who have done so much to destroy the banking system expect to receive their bonuses anyway.

Now, it may well be that there are a lot of people, at all levels, working in some divisions of the companies who actually have performed well, and their divisions have met their targets. But there can be no justification for paying large bonuses to the people who made the reckless gambles and lost.

It's interesting that the best justification that some have come up with for paying the bonuses is that these people are experts in their field, and are easily able to go and use their skills in other financial centres if they don't get the rewards they want here. Am I alone in wondering whether them taking their 'skill' and 'expertise' elsewhere might not be an entirely bad thing?