Building in resilience

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We may never discover the full details of what went wrong at Facebook and associated sites a few days ago; companies which suffer embarrassing IT failures are generally reluctant to admit to the causes of those failures. This story, however, gives us a few clues as to why it took so long to fix – suggesting that the company ran its own internal processes, including building access control, on the same systems, meaning that the technicians charged with fixing the system couldn’t even get into their own offices let alone use their computers to fix the problem. It highlights the essential fact that, in IT, building resilient systems necessarily means incorporating a degree of redundancy into the design, and that redundancy carries a cost.

That simple rule doesn’t just apply to IT, though, and when the UK government said the other day that it wants the UK to be the “most resilient country in the world”, it raised some obvious questions about whether they understand the costs involved. The cynical response would be to say that of course they don’t; it’s just another of their many vacuous and meaningless slogans which they don’t know how to implement even if they wanted to. And the cynics would probably be right, but let’s pretend for a moment that the government are serious.

If we take energy supplies as an example, back in the days pre-privatisation, the approach of the old CEGB to running a highly resilient grid was to have a significant amount of extra generating capacity available, at a significant cost. Post-privatisation, those ‘unnecessary’ costs could be (and were) reduced by running the system closer to full capacity. Similarly, pre-privatisation, the gas boards had a huge storage capacity, meaning that any disruption to production was unlikely to impact on the consumer. Today, as a result of the pursuit of profit, the UK has one of the lowest levels of reserve stocks of gas in Europe. That move to a ‘just-in-time’ approach isn’t restricted to the energy sector. For decades, business schools and consultants have been pushing companies towards the model as a means of improving their ‘efficiency’. Not holding stock on the site of a factory means a reduced requirement for space and a reduction in the need for working capital, both leading to an improved return on investment. Profit, again, has been king.

It all worked rather well on the whole, just as long as the system operated smoothly and reliably. It was always, though, going to be more vulnerable to a shock event than the previous model and the system has suffered two major shocks recently, whilst a third looms large on the horizon. One of those two was unplanned and the other entirely intentional. That a major pandemic such as Covid would happen at some point was both foreseeable and foreseen; that Brexit would have a similarly disruptive effect on supply chains was also both foreseeable and foreseen; and that climate change will provoke another large shock to economic systems is again both foreseeable and foreseen. In the first two cases, however, neither government nor businesses considered the risk level sufficiently high to warrant the expenditure involved in building in the necessary contingency, and there’s little sign to date that they are any closer to preparing for the third. One might, perhaps, excuse businesses, to an extent at least, for not spending large amounts of money on preparing for a type of Brexit which they probably believed no rational government would pursue, but they can’t escape the blame for failing to allow for the possibility that we no longer had a rational government. And in both cases, a responsible government would have led the planning and preparation work.

The lesson we should be learning is that long global supply chains with little or no built-in redundancy are highly vulnerable to shock, and the corollary is that secure and reliable supplies of essentials are easier to guarantee with a more localised approach and a greater level of redundancy and stock-holding. If that’s what the government mean by increasing resilience, then it’s something to be welcomed. It is, though, likely to compromise both international competitiveness and productivity the way the latter is usually measured. It seems extremely doubtful, to say the least, that the current regime is really intending to put security of essential supplies ahead of the ability of their friends, cronies, and donors to make profit. The more cynical assumption expressed earlier is a much better fit with the observable facts. We should treat it as the vacuous slogan which it is.

World-beating at what?

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The first time that I came across Vilfredo Pareto and his eponymous principle was some 40 years ago in the context of a computer system managing the stocks of spare parts for repairing appliances. In this application, the 80/20 rule tells us that by holding the right 20% of all possible spare parts close to the point of use, 80% of faults could be repaired without having to order parts in. The savings in stock holding costs are significant – the hardest part is identifying which 20% need to be stocked, and that’s where the computer came in. In some ways, the principle can be thought of as a mathematical representation of the law of diminishing returns.

The 80/20 rule isn’t a precise law, but it’s a pretty accurate and highly useful rule of thumb which applies in many other spheres as well – like contact tracing, for example. Whether it was part of the thinking behind the 80% target set for the outsourced track and trace service in England is unclear, but its benefits to the outsourcer are very, very clear: the costs of achieving an 80% target are likely to be around 20% of the costs of achieving a 100% target. The graph between cost and target isn’t linear, but it rises only slowly up to about the 80% mark after which it rises sharply. I worked in outsourcing for a while, and experience suggests that anyone who wanted to maximise the profit margin on any service would choose an achievement target of around 80%; it’s a ‘sweet spot’ for the balance between cost and reward. If I could get away with no penalties for under-achievement as well, I’d think I was in outsourcers’ heaven. Fair play, the test, track and trace system may be an operational disaster having only a marginal impact on control of the pandemic, but no-one can criticise the outsourcers’ negotiation skills.

As for the government’s negotiation skills, on the other hand … the words generally attributed to PT Barnum spring to mind. As far as we know, Chris Grayling had no hand in this contract, but his spirit certainly lives on in government. They have an ideological commitment (and if ideology isn’t enough, an occasional political donation tends to help) to the idea that the private sector will always do better than the public sector, where ‘better’ is taken to mean ‘lower cost’ or, as they would prefer to phrase it ‘better value for money’. Sometimes it’s even true; the profit motive can indeed encourage a focus on costs and waste which an annual budget-setting approach does not. But often it isn’t true – apparent savings are just a mirage, a pretty picture hiding an approach based on corner-cutting and under-achievement with an approach to charging for change management which quickly devours those apparent savings in the initial price. One thing that the private sector is undoubtedly better at than the public sector is writing and negotiating contracts. It helps when those with whom they are negotiating are predisposed to believe whatever the outsourcers say. When the government refers to the service as world-beating, they are not lying completely, they are just referring to the profit margins rather than the service delivery.

It's about how wealth is distributed

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One of the old chestnuts trotted out by the PM in his ‘conference’ speech this morning was that it is the private sector which provides the nation’s wealth. It’s one of those ‘truths’ which many believe but which is, in reality, complete nonsense. The problem is that people who argue that are defining ‘wealth’ in a limited way.

If we define ‘wealth’ as the accumulated value owned by individuals, then there is, indeed, no doubt that that ‘wealth’ has been obtained through the profit-making activities of the private sector. But there are two important caveats to that statement. The first is that increasing private profit does not in itself lead to an increase in the total wealth of a society. In many ways, profit simply redistributes existing wealth from the poorer to the richer. An increase in private wealth, if squirreled away or taken offshore can actually have the effect of reducing the total amount of wealth in a given economy. The second is that one of the biggest customers of the private sector is the public sector itself; without public sector spend, the capacity for making ‘profit’ would be greatly reduced.

The alternative definition of ‘wealth’, and the one preferred by economists, is measured by GDP (or more usually these days GVA), which is ultimately simply a measure of how much money is in the economy and how fast it changes hands. It is a measure which is ‘blind’ to the question of whether the economic activity producing the GDP occurs in the private sector or in the public sector; it really doesn’t matter. There are sufficient historical precedents to demonstrate that GDP (and therefore overall wealth) can and does increase, even if all economic activity is carried out by state agencies and nationalised companies, enough in itself to disprove the PM’s point.

Whether the two alternatives increase wealth with equal efficiency in the use of resources is a rather different question. Whilst there is no obvious or necessary reason why state-run enterprises should be less efficient or profitable than private enterprises, we know from experience in the UK and elsewhere that, in practice, it has generally been the case that they are. There are a number of reasons for that (not least of them being the inclination of politicians and civil servants to attempt to micromanage), but that is a question for another time. The point is, though, that Johnson did not argue that case at all; he argued in black-and-white terms that the public sector does not create wealth.

Whether from ignorance or ideology, the PM clearly identifies ‘wealth’ with that which is owned by wealthy people. They would be his cronies and donors – the sort of people who have been getting contracts from the public sector without even having to go through any sort of competitive tender since his government came to power. It is an ideological position which leads directly to the transfer of assets and resources from those held in common by the state to those held by a few private individuals. It may or may not be an approach which increases the total amount of wealth in an economy, but it is definitely an approach which makes some people wealthier, by transferring such wealth as does exist from the many to the few. In that regard, he is more of a traditional Conservative than some are giving him credit for.

Supporting British jobs

Tweet There seem to be few people in Wales supporting the construction of the HS2 rail link, most of them preferring to argue that Wales should have its share of the money and use it for other purposes.  I disagree – not because I expect Wales to get any benefit from HS2 itself, but because, unless we are going to prevent people from travelling at all, the alternative to better and faster rail links is more runways and aeroplanes.  So I’d prefer to see Wales making the case for HS4 (we’ve already missed the boat for HS3 which is likely to serve Scotland) so that we become part of the high speed network rather than whinging on the side-lines.  And the only way that HS3 and HS4 will happen if they are treated as part of a UK network rather than seeing the three projects as entirely self-contained.

Where I find myself more in line with mainstream opinion in Wales is with the idea that infrastructure projects (of which HS2 is one) are a good way of boosting a flagging economy, and that investing in them can create economic growth and jobs, as well as boosting skills and knowledge in the economy.  It was in that context that I was astounded to see that on his trade mission to China, the Chancellor has urged Chinese firms to bid for construction contracts on the project.

‘Scope creep’ is one of those things which can all too easily happen on any project, but for it to lead to the mission becoming the opposite of the original intention is a rare achievement.  Osborne went to China to drum up business for British companies, with the stated aim of China becoming the second biggest customer for British companies.  There is currently a significant gap between the level of the UK's exports to China (at around £16.7 billion), and imports from China (t around £37.6 billion) - see Figure 2 here, so his aim of increasing UK exports to China is a wholly reasonable one.   But, instead of that, he’s ended up trying to drum up business for Chinese companies in the UK.  Even if the Chinese companies would employ local workers to carry out the work, the profits (and the tax on them) would still end up being syphoned out the UK economy rather than reinvested here.

It’s another take on being ‘business-friendly’ I suppose – it’s just other countries’ businesses that he’s supporting.

Taxes, grants, and photo-opportunities

Tweet Yesterday’s Western Mail carried this story about the Ford engine plant in Bridgend.  The company received a £12 million grant from the Welsh Government a little under two years ago, and is now seeking a further £15 million in aid, with the implied suggestion that it may yet decide to build its new engine elsewhere.  Part of the justification for seeking further aid is that the company’s Europe, Middle East and Africa region is expected to report an annual loss of around $1.2 billion when results are published on Thursday, although globally the company is expected to show an overall pre-tax profit of $6 billion (around £4 billion).

I’m not in a position to know whether, or to what extent, the company does its intergroup accounting in such a way as to ensure that profits end up in the places where the tax bills is lowest, and losses in the places where state aid is easiest to come by.  Perhaps they don’t, although they’d be something of an exception amongst the big multinationals if they did not endeavour to optimise their advantages from international differences in approach.

I also don’t know whether the Labour Government in Cardiff will accede to the request for another £15 million.  I’d be surprised, though, if they rejected the request out of hand given the potential consequences.  It’s easier to claim credit for ‘saving’ jobs than it is to risk those jobs.  And although the government happens to be Labour, it doesn’t seem likely that any of the opposition parties would put their heads above the parapet to query the wisdom of paying £15 million to a company which is making a £4 billion annual profit, for similar reasons.

By curious coincidence, the same edition of the paper contained a letter from a Labour Councillor in Blackwood, Nigel Dix.  (Scroll down here.)  He attacks the Tories, Plaid, UKIP, and the SNP for proposals to reduce corporation tax.  Leaving aside the rather pathetic attempt to brand all four parties with the same brush as “parties of the right” seeking to “transfer wealth to the rich”, his argument is that a reduction in tax will “simply result in multi-national companies contributing even less than they currently do”.  That point is a valid one to make as a description of the overall global result, although it skips over the fact that a transfer of taxable profit to a lower tax regime might actually lead to a higher tax take for an individual exchequer.

But what, ultimately, is the fundamental difference between a tax cut (bad) and a grant (good)?  They are both ways of giving money to companies in essence.  There are arguments for and against both; each has its advantages and disadvantages, but either way there is an effective transfer of funds from the taxpayer to the private company.

Personally, I’m a little agnostic on the question of corporation tax reductions for companies.  I don’t really see it as a question of it being right-wing or left wing; that depends on the accompanying policies.  In isolation, then certainly it is, like a cash grant, simply a rebalancing of finance between the public purse and the private purse in a way which is damaging to the public purse.  But if accompanied by measures to prevent the use of clever accountancy tricks to shift the profit from where it is made, and to properly tax any money taken out of companies in high salaries and dividends, then allowing companies to retain more of their profits with little option but to reinvest them could be an engine for job creation.

I suspect though that Labour will continue to cling to a regime of higher tax and then give the money out in grants.  The photo-ops for ministers are much better that way.

Moving the money around

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In the run-up to the Conservative conference, the leader of that party’s group in the Assembly set out his plans for the economy.  Now it might be argued that we don’t need to worry too much about what he has to say, since the probability of him ever being in a position to implement any of his policies is diminishingly small.  On the other hand, although he has perhaps set out his views more directly, there are elements of what he has to say which have, undeservedly, become part of the accepted political consensus amongst the parties.  For that reason, they deserve more scrutiny.

Take this one for instance: “It is the private sector in Wales that creates wealth and prosperity.  The public sector, as important as it is in delivering high quality public services for all, moves the same money around.” Now I’ve heard much the same thing said by politicians of different parties; ‘private sector good, public sector bad’ is the sort of conventional wisdom which increasingly underpins both government policy and opposition policy.  But is it true?

It probably depends on what is meant by the words “wealth and prosperity”.  If it means GDP (or GVA if you prefer), then it’s nonsense.  In essence, it really makes no difference at all to GDP whether a particular service is delivered from within the public or the private sector; it all gets counted. 

Perhaps wealth means the wealth of the individual employees.  But again, as long as they get the income every month and can pay the mortgage, whether the house (the main element of many people’s personal wealth) is paid for by a salary in the public sector or the private sector is neither here nor there.

And when those employees her money down to the shops and spend it, do the shopkeepers give a hoot whether their customers work in the public or the private sector?  Of course not; and it makes no difference at all to the retailers’ wealth and income either. 

There is one and only one sense in which I can think that the private sector “creates wealth” in a way that the public sector does not, and that is that the private sector generates profit which some individuals accumulate as private ‘wealth’.  In short, it makes those who own and control the capital ‘wealthy’.  But, and this is a point which people often seem not to understand, ‘making some people wealthier’ isn’t the same as ‘creating wealth’; in a very real sense it is just, to quote Davies in a different context, “moving the same money around” - in this case from the customers of an enterprise to the owners.

National wealth is usually defined as the total net value of all assets, goods and services owned by a nation; and in that definition, it really doesn’t matter at all whether ‘services’ such as education are owned and run by the state or by private individuals; they’re still counted as part of national wealth.  That total national wealth can still grow (which is what ‘wealth creation’ means to me), however those services are owned and run.  It is perfectly possible to have an economy where there is no private sector at all; such an economy would still generate wealth, it’s just that that wealth wouldn’t necessarily be concentrated in the hands of a few. 

(I’m not arguing here that we should adopt such an economy, merely that such an economy is a possibility.  If he’d argued that the private sector was a better way of increasing total national wealth, I’d have more trouble dismissing his argument; but he didn’t – he argued that it’s the only way.)

Whether services are run by the public or the private sector, they still need to be paid for.  And in the grand scheme of things, whether they’re paid for by taxing people or by charging at point of use is also irrelevant.  Both are merely “moving the same money around”; the idea that taxation somehow depends on there being a private sector making profits which can be taxed is another myth.

Ultimately, the idea that only the private sector creates wealth is nothing but ideological dogma which seeks to legitimise the redistribution of wealth from the many to the few.  Like so much in the allegedly ‘post-ideological’ age in which we live, it’s an ideology shared by politicians of many parties.  But there really is an alternative.

Hiding their true reasons

Tweet Like many others, we had a UKIP leaflet fluttering through the letterbox last week.  Whilst it claims to be from UKIP Wales, and names their four European Parliament candidates for Wales, there is not one word of Welsh to be found on it.  Perhaps the printers, in Bodmin, can’t cope with Welsh.  Or perhaps UKIP’s vision of the ‘UK’ which they wish to ‘set free’ is just a very English one, in language at least.

Central to their pitch in the election is immigration; indeed, their leaflet gives more prominence to that issue than it does to the EU - although I suppose that if you blame the EU for everything, there is a connection of sorts. I don’t doubt, sadly, that the pitch on immigration will appeal to many voters, but the logic behind what they are saying deserves and needs to be challenged.  They are appealing, fundamentally, to people’s gut instincts about foreigners, but trying very hard to cloak that by turning it into an economic argument about jobs.

In essence, one part of what they are saying is correct – ‘foreigners’ prepared to work for lower wages can and do damage job prospects in the UK.  But the conclusions that they draw from that simply don’t stand up to examination - because it has nothing to do with immigration.

(It doesn’t follow in any case, of course, that immigrants and cheap labour are synonymous; many immigrants are highly-skilled and highly-paid to go with it.  But let’s assume for the moment, purely for the sake of argument, that a significant proportion of those migrating to the UK are willing to work for lower wages than the ‘natives’.)

It is an inescapable fact that capitalists (often described these days as entrepreneurs, because that word has a more cuddly feel to it) will seek to employ the cheapest labour that they can get, in order to maximise their own profits.  But it really doesn’t matter to them whether that cheap labour is a result of immigration into the UK or a result of labour being cheaper in other countries.  That’s why we’ve seen so much of the UK’s manufacturing industries (and jobs) exported overseas.

In fact, there is an argument which says that cheap labour abroad does more to damage UK jobs than does cheap labour provided by immigration.  At least within the UK, there is a chance that we can police and enforce the minimum wage legislation (or even move to a living wage if the political will were there); prevent the exploitation of child labour; and stop the use of what is close to slavery in some other places.  We can have far less control if the alleged cheap labour simply stays where it is and our home-grown capitalists take the jobs to them instead of waiting for them to come here.

And that underlines why the real problem here is nothing to do with immigration – it is to do with the capitalist ideology and economic system which drives the economy on the basis of making capitalists wealthy rather than on the basis of creating collective wealth. Stopping or controlling immigration does nothing to change that.  And it isn’t something which UKIP have any inclination to change either.

Goldilocks and BP

Tweet The American boss of BP has gone where many British company leaders have apparently feared to tread, and expressed very publicly his concerns about Scottish independence.  It’s his right to do so, of course, although whether having bosses of multi-national corporations telling Scots what they should do will turn out to be productive or counter-productive remains to be seen.

His “concerns”, such as they are, seem mostly to boil down to the fact that there are – inevitably at this stage – some uncertainties about the consequences.  As far as it goes, that’s fair enough; those planning investments will always prefer certainty to uncertainty because it reduces their exposure to risk.  However, one doesn’t need to get far into Rumsfeld-speak about the knowns and the unknowns to realise that the future without independence isn’t as certain as he might think.

We all have an inbuilt tendency to see the status quo as having a “forever” quality to it, but as the song says “It isn’t necessarily so”.  The status quo itself is always changing.  Worse still, in this particular case, since a ‘no’ vote in the first referendum on Scottish independence won’t make the independence issue simply go away (and I’m still surprised at how many people don’t seem to understand that), it might merely prolong the uncertainty.  In that sense, independence is a more certain and long term outcome than the result of a ‘no’ vote.

More generally, although not directly voiced by the head of BP, multinational capitalists prefer what are to them Goldilocks-sized states.  They want them to be big enough so that they don’t have to deal with too many different sets of laws, regulations and taxes, but small enough so that they can be played off against each other, and so that economic power can be retained in the hands of the corporations rather than governments.  For BP, the UK probably looks about the right size.  And having a government which is a bit of a pushover when it comes to protecting the interests of multi-national capitalism is a bonus.

But ultimately, the only thing that really matters to them is profit.  They can’t move the oil and gas deposits, so as long as they can cover the costs of dealing with whatever rules a country – whatever its size – throws at them, and still make an acceptable level of profit, then they will continue to invest.

The ‘noes’ will seize on this latest intervention as ‘proving' their point; but I’m not convinced that the ‘ayes’ have much to worry about.

Being right for the wrong reasons

Tweet I find it hard to disagree with Ed Miliband’s assertion that banks have become too large and financial power too concentrated in the hands of a few.  That alone is reason enough to want to see some of them broken up into smaller banks.

I’m far less convinced about his apparent belief that the additional competition which he expects to result will bring benefits to businesses, such as more lending.  The faith in “competition” as the answer to just about everything is what gave us the marketization of the health service – perhaps he isn’t so far away from Thatcher and Blair as he’d like us to believe.

Certainly, having more and smaller banks will lead to more competition; it’s the leap beyond that to the conclusions about who would benefit that I would doubt.  Smaller banks are likely to take less risk rather than more; they’ll be competing for the safest, most profitable, customers, not the riskiest ones.  And if banks aren’t lending to businesses at the moment, it isn’t because they can’t – it’s because of their assessment of the likely levels of risk and return.

Paradoxically, Miliband’s advocacy of breaking up the banks may actually have the opposite effect of that he claims.  Insofar as breaking up the banks is one of his better ideas, it’s for completely different reasons than those he gives.

Don't do evil

Tweet Google’s motto was rather thrown back at them last week by the Chair of the Commons committee looking at tax avoidance by some of the major companies.  I’m not sure that it was entirely fair though.

It’s not that I support tax evasion; I don’t.  Clever schemes to avoid paying tax in one jurisdiction by transferring the transactions to another are at the least immoral, and from some reports, may even be illegal.  But are immorality and illegality the same as evil?  Evil suggests something much more deliberately malign to me.

Killing people – now that would be evil.  Building and possessing weapons of mass destruction, or supporting and acquiescing in such – now that would be evil in my book.  (And, purely coincidentally, would put most members of the said Commons committee higher up my list of evil-doers than Google.)  But using the letter of the law to avoid paying tax doesn’t seem to be in the same league to me.

It made a good headline, though; which was probably all that it was ever intended to do.  Publicly castigating the bosses of such companies is great fun, and attracts attention to the castigators.  But I can’t help feeling that our legislators would be better occupied simplifying and strengthening the laws under which such companies operate rather than engaging in witch hunts.  To say nothing of ensuring that the authorities prosecute through the courts when breaches of the law are discovered.

Expecting capitalist companies to do other than maximise the profits of capitalists by every means that they can is unrealistic.  It’s what they’re there for.  Enriching themselves at our expense is what capitalists do; the evil is in the system rather than in the individuals.

PS – Another thing to emerge from last week’s news on tax avoidance was that Amazon paid less in taxation than it received in government grants.  Am I the only one to be wondering how on earth we can be in a position where a company making billions in profits is getting grants at all?  In this case, it’s the Scottish Government paying them an incentive to build a new distribution centre in Dunfermline; but presumably similar incentives were paid for the centre in Swansea.  We’re paying grants to companies to establish themselves here and then transfer all their profits and taxes elsewhere, in effect.

It makes for an interesting comparison with the call by Iain Duncan Smith a few weeks ago for pensioners who don’t ‘need’ the benefits they’re being paid to give them back.  What about capitalist companies which don’t ‘need’ the grants they’re receiving?

Entrepreneurs, con-men, and thieves

Tweet Three different categories of activity, one good and two bad; and most of us think that we know the difference between them.  But the lines can sometimes be a little “fuzzy” to say the least.

It was a point which came to mind when I saw the television footage last week of the raid by the Information Commissioner’s office on a house from which individuals had been sending those annoying text messages telling us that we may be owed a certain amount of money for having been mis-sold PPI.  It was an interesting counterpoint to a story, carried I think by the Sunday Times, a couple of weeks ago about the firms which actually claim the PPI on behalf of people.

That story talked about the 'entrepreneurs' who have established companies to process claims.  They’ve seen a gap in the market, moved in, and made substantial fortunes as a result.

But by doing what, precisely?  Filling in forms which people could just as easily fill in themselves – and taking 10% of the proceeds for so doing?  I’m sure that they’d describe it as providing a service for people who, for whatever reason, are unable or unwilling to do the job themselves. 

There’s nothing wrong with that per se.  Making a profit by providing a service is a perfectly normal business activity.  It might, though, sit more comfortably with a lot of us if they actually told their customers how easy the job really is.  Whatever, it seems that in total these companies have managed to clean up around £1 billion from the victims of the sold PPI insurance. It may sound a little dodgy to take that much money for doing so little, but if it starts and ends there, it is perfectly legal and it’s up to individuals to say no rather than fall for the marketing ploy.  But it’s the marketing of these services which starts to raise some questions about boundaries.

Apparently the companies who send us those annoying text messages are only middlemen.  However, it does appear that the legitimate companies gain access to potential ‘customers’ by purchasing names and addresses from those middlemen, so the ‘entrepreneurs’ are only contacting those who’ve already been hooked.  Whether that still leaves them as entirely legitimate entrepreneurs is a matter of opinion – do they really have no responsibility for any illegality committed before they become involved, such as the way in which their contact lists are obtained?

According to the news reports these text messages say that you ‘may’ be owed a certain amount of money – I’m sure I’m not the only one to have received a message which was far more definitive than that.  Only a week ago I had one telling me that I am owed £3350 from a mis-sold PPI policy.  Since I’ve never been sold, let alone mis-sold, PPI, the precision with which they can tell me how much I’m owed is remarkable.  From press reports I know that the figure quoted is actually based on an average of the sums recovered for a vast number of people – but that isn’t what the message said.  It very explicitly told me that I am owed £3350.  It's a con. 

About a month ago I also had a message telling me that the sender had been trying to contact me about ‘my accident’ to help me claim compensation – and it’s not the first one of those I’ve had either.  (Let me hasten to reassure both my readers that I have had no accident and remain in apparently good health.) A little bit of research on the telephone numbers used for these two messages suggests – although it does not conclusively prove – that it’s the same people behind both.

Then we have those nice Asian people from the “Windows support department” telephoning me to offer me assistance to resolve the ‘problems’ which my computer has, they claim, reported to them (although their lack of ability to explain how my computer has reported these ‘problems’ rapidly becomes apparent when they are challenged).

Perhaps in India these people work in what looks like a respectable and successful call centre, established by local entrepreneurs.  To me they just look like crooks.

I don’t wish to denigrate successful entrepreneurialism; it’s key to our economic success.  We should be careful though about according the accolade to any and every company which makes large profits.  Successful and acceptable entrepreneurialism depends on more than that.  Companies based on activities which are dubious or in some cases downright illegal, even if not performed directly by the companies themselves, have no place in a successful entrepreneurial market.

Cleaning the money

Tweet It seems that not a week goes past without the exposure of another scandal by one or other of the banks.  Over the last week, it was HSBC’s turn to come under the spotlight.  I suppose it was inevitable that Labour politicians in London would go for the personal angle and start attacking Tory minister Lord Green.  He certainly has some questions to answer, and they need to be asked; but Labour’s tactics also succeed in diverting attention from the substance.  It’s become more about who did it than about what was done.

But the what deserves more attention.  The accusations are twofold, in essence.

Firstly, it is suggested that the bank went out of its way to find ways around trade embargos and sanctions in order to continue to make profit from certain regimes, notably Iran.  And secondly, that the bank engaged in money-laundering on a massive scale, assisting various drug barons and gangsters to turn dirty money into clean and untraceable money, even if only by turning a blind eye or having weak systems rather than through active collusion.

In reality, how different, in moral terms, are the bankers from the gangsters and drug barons whose money they have been laundering?  They’re all trying to make money for themselves at the expense of others.  What’s the moral difference between simply ignoring the rules and laws on the one hand and trying to find ways of subverting them on the other?

What some of the various e-mails and statements seem to be suggesting is that the bank wanted to be seen to be abiding by the letter of the rules, without allowing the rules to actually achieve their purpose – and that it was doing that in pursuit of profit.  The pursuit of profit, in short, outweighed any moral responsibility to assist the relevant authorities in achieving their clearly-stated aims.

That subjugation of morality to the pursuit of profit is something of a common factor in a number of the recent scandals, and equally common is the defence that what was done was ‘within the rules’.  From duck houses to money-laundering, the defence is the same one.  It raises the question as to whether, and to what extent, we can or should expect companies or individuals to follow any moral imperatives at all.  Or is life really just about following the rules, and not expecting anyone to make any wider judgements?

There’s a problem either way.  The problem with leaving the rules lax and expecting people to exercise a degree of morality is that there isn’t an agreed definition of what is or is not moral.  What, precisely, is the standard of morality to which we wish them to adhere?  And how do we set it?

On the other hand, ever tighter rules merely encourage people to believe that moral behaviour is anything which is permitted within the rules, and that if something isn’t specifically prohibited, then it’s OK.

On top of that, there is of course the knowledge that ‘if we don’t do it someone else will’, and competition of that sort drives people to push the rules to the limit.  In that sense, the whole of our banking system is a bit like a gigantic game of ‘Prisoners’ Dilemma’, with everyone trying to second-guess what everyone else is going to do.

Expecting those whose primary goal is to make money for themselves or their employers at the expense of others to do any more than abide by whatever rules we set for them is probably unrealistic.  If we want to change the way people behave, we need first to change their perception of what it is that they are trying to achieve.  Pursuit of personal advantage simply doesn’t do it.

Keeping the profit

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The drought in South East England prompted calls for Wales to further exploit our water resources by selling water to England at a profit.  Whilst fracking is, to say the least, a controversial process, the possibility that Wales might be rich in shale gas has led some to predict a bonanza for Wales.  And the fact that Wales has an enormous potential for renewable energy has led others to argue that we should exploit that potential to sell electricity across the border.

The three things are connected in two ways.  The first is the obvious one; they are all to do with the fact that Wales has valuable natural resources, which we can choose to exploit if we wish.  But the second is that much of the debate has effectively skirted round the question of how we ensure that the benefit of any such exploitation stays in Wales.

Of course any decision to exploit any of those (or indeed other) resources is likely to bring some benefit in terms of local jobs and services – but, as the wind industry in particular has demonstrated, such benefits can end up being a tiny proportion of the total profit generated by the activity.  The bulk of that profit can all too easily be diverted elsewhere.

It certainly isn’t as simple as having control over the relevant planning decisions, as some seem to think.  In itself, merely having the ability to say yeah or nay does nothing to ensure that we gain the benefit. 

Nor is it enough to argue for control of the Crown Estate.  That’s a worthy enough aim, but it isn’t the same thing as owning the underlying assets and the companies exploiting them.  Receiving some royalty payments is better than nothing, but it doesn’t touch the big issue of who gets the profits.

And it is that question – who gets the profit – which is the key one.  For as long as the exploitation of Wales’ natural resources is left to the vagaries of the market, the traditional capitalist approach, there is always the potential for the companies doing the exploiting to be owned and controlled elsewhere.  And thus, of course, for the profits to be siphoned out of Wales, mirroring the exploitation of the past.

Nationalization and state ownership have become dirty words in the UK.  It seems that successive UK governments are quite happy for the German state to own and operate a significant chunk of the UK’s railways, and for the French state to own and operate an equally significant slice of the UK electricity industry, it’s only ownership by the British state which is unacceptable.

But if we really want to ensure that we benefit from the exploitation of our natural resources, we need to look at the ownership and control both of the resources themselves and the companies exploiting them.  We need to ensure that we own them, in short.

Last week, Argentina aroused the wrath of many countries by taking ownership of its own oil resources and nationalising the company.  The government of that country recognised the key strategic value of those resources to its economy and decided that the best way to protect them was to own them.  Why should things be different in Wales?

Those who call for Wales to sell water, or electricity, or gas without facing up to that question of ownership need to explain need to explain how else they intend to ensure that the benefits don’t simply flow elsewhere.

Wants and needs

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To listen to the voice of the ‘business community’, one might think that one key element on the road to full employment and economic growth is as simple as freeing business from ‘regulation’ – and in particular, allowing them to pay lower wages, have staff work longer hours, and limit employees’ rights as much as possible.  I can see how any individual business would see all of those things as enabling it to produce more for less and thus increase profits. 

At first sight, it’s no surprise therefore that the collective voice of business expresses this sort of view to government.  It should be though, because what individual businesses want, in order to compete against each other, isn’t necessarily what the economy as a whole – and all the businesses in it – really need.

The approach is grounded in looking only at the cost side of the equation, and only from the narrow, micro, point of view.  It’s a natural tendency, because costs are easier to control, but it isn’t the whole picture.

On the income side, businesses actually need customers with money to spend and time to spend it.  I sometimes wonder if every individual business trying to reduce its own labour costs to gain competitive advantage isn’t making the implicit assumption that the consumers of their products and services will be the ‘overpaid and unproductive’ staff of their competitors.  In effect, attacking pay and hours to compete only works as long as everyone else doesn’t do the same thing.

There is another implicit assumption being made as well, which is that as some businesses become more ‘productive’ and thus free up labour, then other businesses will expand, or be started, to take up the slack.  That’s an assumption which underlies the whole economic policy of both government and opposition.  And, albeit with a greater or lesser degree of success at different times, it’s proved a valid assumption, to an extent, over the long term. 

The fact that it doesn’t currently seem to be happening doesn’t necessarily mean that it won’t happen in due course, but it is at least possible that, this time, it won’t.  What happens then?  What’s Plan B?

The government and opposition alike would have us believe that the lack of investment at present is down to a failure of banks to lend.  And I'm no fan of banks, but there's a danger that they're just a soft target.  There is plenty of evidence that a lot of businesses, particularly the larger ones, are sitting on enormous pots of cash.  That would mean that it’s not a lack of cash which is holding back investment, but a lack of opportunities to invest profitably.

The political assumption is that any Plan B would essentially revolve around either public authorities investing in infrastructure, or else cutting taxes to put more money in people’s pockets so that they can go out and spend.  The evidence suggests that, of the two approaches, the former would be more effective, even though any jobs created are likely to be of temporary duration, partly because putting more money in people’s pockets at present is more likely to lead to a paying down of debt than an increase in spending.

However, if we assume for a moment that putting more money in people’s pockets would actually work, why the assumption that the only way to do that is to reduce this tax or that tax?  Paying higher wages by sharing the rewards more equally could potentially have the same effect, as could employing more people to reduce all the unpaid overtime worked by an increasingly stressed labour force.  (That would also give people more leisure time to spend the extra money as well.)

Reducing productivity and paying higher wages is counter-intuitive, of course.  We’ve been brainwashed into thinking that ever increasing productivity and cost reduction are inherently good things, just because they seem to make sense at the micro level.  But at the macro level, they only make sense as long as the assumption that something else will take up the slack remains valid.  Otherwise, those increases in productivity have to pay for the unproductive slack.

In that case, a real and radical Plan B involves a fundamental re-think about the basis on which the economy is run, and a move towards a more co-operative rather than competitive approach.  An economy, in short, which is built around the needs of the whole of society rather than around the wants of the minority.

They used to say that ‘What’s good for General Motors is good for America’, but it seems to me that, in economic terms, ‘What’s good for the whole is good for the parts’ is much more likely to be true in the long run than ‘What’s good for this part is good for the whole’.

Output, not profit

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It’s generally recognised that the biggest problem Wales faces – whether as part of the UK or as an independent country in waiting – is its relative economic poverty.  Or perhaps more correctly, its relative lack of economic wealth.  Putting that right ought to be pretty high up the list of priorities for Welsh politicians – nationalists and unionists alike; we should be aiming to support ourselves in either scenario.

For many, the answer is a simple one.  The private sector must be greatly expanded (although there’s less of a consensus as to whether the public sector needs to be shrunk in the process).

Anything which stands in the way of that – taxes, planning controls, regulations should be swept aside.  Oh, and the government should provide a generous scheme of grants and soft loans to enable those private businesses to set up and expand, and an education system which churns out people with the skills which ‘business’ needs.

That all of these things would help expand the private sector is probably beyond dispute (although whether they’re all desirable is another question entirely).  The underlying – and sometimes openly stated – assumption is that the private sector creates wealth, whilst the public sector spends it.  However, that view seems to be in danger of confusing profit and wealth (or perhaps social wealth with private wealth).  They are not at all the same thing.

It’s not that the quest for profit is irrelevant in this context; it’s just that there’s more to increasing social wealth than merely allowing some people to make profit.  Profit may well be the incentive which drives some people to borrow other people’s capital and invest it in businesses which provide goods and services which can be sold – but it isn’t the necessary or only driver.

Adam Smith – not generally known as an avid left-winger – described wealth as "the annual produce of the land and labour of the society".  That’s closer to a definition of GDP than profit.  And, since the measure on which Wales is failing is GDP per head, it’s actually a more relevant consideration than profit.

The CRESC report which I referred to a couple of weeks ago included the following comment in its concluding section:

“At this stage, what the UK economy needs from business (quoted and unquoted) is not profit but output because net output or value added at firm level provides the fund from which labour is paid and therefore sustains employment.”

In other words, an overall increase in economic activity is more immediately important to us than whether that activity does or does not generate profits for individuals.  And whether that activity comes from private business, social enterprise, state enterprise, or any other sort of enterprise is less relevant than that the activity happens.  It’s a different way of thinking about the question – and suggests that different solutions might apply.

One might think that a government which has done so much to identify the sorts of economic activity which it wants to see expanding in Wales might take a pro-active view of its role, but instead it seems to be largely reactive – when there’s any action at all.  It seems to be fixated on the idea that it can do little more than facilitate, encourage, urge, and incentivise private entrepreneurs to come along and solve our problems for us.  It's the same approach which has been tried and found wanting for decades, although it occasionally gets dusted off and presented as something new and different.

My thanks go to a pseudonymous commenter on a previous post who reminded me that it was not Einstein who said that “one definition of human madness is to do the same thing and expect different results”.  But the fact that it wasn’t Einstein doesn’t invalidate the sentiment.