Tuesday, 22 September 2009

Who Hath Balsam For England's Wounds?

It is now apparent that the United Kingdom will pay the price for ten years of Antony Charles Lynton Blair's rule, with an entire generation of austerity. It is also quite clear, that England will pay a deeper price, and for longer, than Scotland, even though it was the recklessness of Scottish banking institutions that precipitated and amplified the financial crisis.

England's economic wounds won't be healed by Scottish Independence, even though Scottish banks and Scottish politicians, such as Mr Blair and Mr Brown, played such a major part in her downfall, because their weapon was an asset bubble formed by the inflow of entirely speculative foriegn capital into largely English assets. Having created an asset bubble in England, they then borrowed against it to buy massively into the highest risk debt, secured against America's own asset bubble. In effect, HBOS and RBS tried to make Scotland a major world banking power by abducting the English property sector and ransoming it.

Icelandic banks also attempted to become world players by exploiting strict (and asinine) H.M. Treasury rules (let's not bother to say who drafted these) that obliged British public institutions to "invest" their reserves in accounts offering the "best" (ie: highest) interest rate, almost regardless of risk. A great many English (and Dutch) savers put their money where they could see dozens of British public bodies and charities putting theirs, assuming that this had to be safe enough! There was no way, of course, that the Icelandic banks could even hope to pay the interest rates offered, without re-investing the deposits in derivative products as risky, or worse, than those taken on by RBS and HBOS.

Meanwhile, within the public sector, something even nastier was happening, and this still hasn't been widely-enough recognised or understood.

Under cover of some high-blown, smarmy and completely insincere rhetoric about "investment" for the future, especialy the future of the children now destined to spend the whole of their working lives paying for Mr Blair's project, public spending not only escalated sharply, but also changed deeply in nature. Instead of public spending paying for the construction of an asset, such as a hospital, school, or a military training base, public spending pays a "private finance initiative consortium" to provide the use of that asset for a specified period of time, after which the asset, whatever it is now worth, usually still belongs to the consortium and not the taxpayer. During that period of time, the amount the taxpayer pays for merely using that asset, invariably amounts to the cost of creating and operating it, a profit margin on top of that, and compound interest at a rate far above the base-rate, on top even of the profit margin. There are several known cases of such PFI assets costing the taxpayer several times what it would cost if the government had simply borrowed money at market rates to pay for them outright, and then paid the loans and interest off. And at least at the end of that, the taxpayer would have owned the assets. PFI can be fairly compared to:
buying a house using your credit card rather than a bank mortgage AND, fifteen to twenty-five years later, giving the house back to the credit card company as soon as you've finally cleared the debt.

Invented by Kenneth Clarke as what he saw as a temporary and slightly embarrassing expedient to close a budget gap over a few months, PFI has become the primary form of long-term "public investment" under Blair and Brown.

Now, the scale of Britain's PFI debt (and that's what it is) may have since been dwarfed by the scale of public borrowing to bail out the banking system, but PFI debt is far more toxic to the country than the banking bail out, and not just in financial terms.

Firstly, PFI delivers huge amounts of money to platoons of mediocre businessmen, for very little effort. As Samuel Pepys discovered when he was at the Admiralty, if you're not careful, people really will try and sell you old rope -and this drives out of business anyone trying to make good, new rope that the King's sailors can actually depend on. In 18th and 19th Century Britain, businessmen made huge amounts of money for devising ways to make greater quantities of better and cheaper goods. Any public resentment of their wealth was tempered by tangible evidence that they'd delivered what people had paid for, and it was either something that hadn't existed before, or something that previously only a few had been able to afford. What usually distinguishes a Blairite entrepreneur from a Georgian or Victorian one, is the utter worthlessness of what he sells. And, simply by creating conditions in which mediocre businessmen thrive and proliferate, Blairism tips the ecological balance against those who actually produce something useful, better, new or genuinely cheaper.

Secondly, PFI has been used on a scale large enough to create a whole economic sector that depends on it. This not only displaces other economic activity which might employ workers to more useful ends, it creates a power-base which can only survive by preserving the PFI system. This is a recipe for endemic political corruption.

But PFI contracts only account for the "investment" side of Blair and Brown's massive increase in public spending. There has been a huge increase in the number of people, the percentage of the workforce, employed in the public sector. And, yes, yet again, there is a profound and toxic change in the nature of those jobs. There's a certain point where, however "nice" the objective of a public service, it needs to be stopped from taking too many people away from the rest of the economy. It does more harm, faster, than the state simply taking money away, if the state takes away the people who earn that money for the national economy in the first place. But even within that, there are good forms of public employment (only a bad thing if they exceed the need for a service or starve more vital bits of the economy of skilled labour) and perverse forms of public employment, which are good in no circumstances at all.

Perverse public employment can take the form of a layer of management within an otherwise necessary and good public service, which has no purpose other than to employ a client class of the ruling party, or to impose one party's ideology on the delivery of that service after it has been removed from office by an election. It can also take the form of whole public bodies which exist for no real reason other than to employ (and enrich) the political client class and to impose a party's ideology on the country, as well as to guide decisions to the client class's financial favour, regardless of who might hold elected office thereafter.

"Eastern England", that is, East Anglia plus Bedfordshire and much of Hertfordshire, has a Regional Development Authority, which has no purpose other than to over-ride the planning decisions of elected County and Borough Councils in the region. (This is a region which almost never votes Labour and votes Liberal only if it absolutely has to.) Every penny spent on the RDA is doubly perverse, because it's not simply money wasted, but money spent ensuring that voters have to live with the opposite of what they voted for. If PFIs are incentives towards anti-democratic behaviour, RDAs are purpose-designed tools of anti-democracy. There is no compelling difference in purpose or character between the East of England Regional Development Authority and the European Commission. The real difference is the continent-wide reach of the latter.

For every public employee in an outright perverse body, there are several others embedded within genuine and necessary public services, feeding off them whilst being employed primarily towards perverse (usually anti-democratic) ends. "Standards" departments are no longer things that ensure that the job gets done properly, but things that restrict what elected representatives of the public are allowed to say, what matters they may consider, even what decisions they may reach. Some of them even attempt to discipline private citizens for their opinions. Something that should not be done at all, let alone at the public's expense! There are dozens and dozens of these boards and sub-departments (they are not all "Quangos") employing many thousands of people. One interesting way of distinguishing a perverse public body from a legitimate one, is to compare the average renumeration of those within that body, with the prevailing renumeration across public service as a whole. The perverse ones tend to pay well above the average, because actual service delivery requires front line workers on basic wages and the perverse bodies do very little of this. Doing this for perversely-employed individuals and sub-departments within a legitimate department is far harder, although they do tend not to be on the minimum wage!

A more sophisticated approach is required, looking at how much of that individual's time is spent on "training" and "development" and, most especially, casting an educated and knowing eye over the bodies which deliver that training and development. For example, someone works in the fire service and they go for a month's training. Is this at the fire service college, or a seminar run by some designer of fire-fighting equipment, or is it run by some outside training company or "charity" with a peculiar name, utilizing country hotels and sporting clubs as its training sites? By asking this kind of question, you can soon tell the difference between a fireman employed by the fire service, and a political client, there for reasons other than putting out fires and retrieving kittens from trees. Sacking the latter will not only save money, some of which can be spent on better-equipping the former, it will also deprive the anti-democratic tendency in this country of another little power-base. Abolishing entire perverse departments, will save huge amounts of public money and blast great holes in the ranks of the anti-democratic tendency.

And as for the banking bail out. Huge amounts of money are being
risked, but they are being risked against assets whose worth is capable of recovery, in which case, the taxpayer will have the benefit of those assets. (Which isn't the case with the PFI "investments".) The PFI debt is being wasted, and in a way which is doing active harm to the well being of the country and its democratic institutions in particular. We should not allow ourselves to be distracted by the banking crisis and the public spending deficit that it has caused, rather we should harness the necessity of spending cuts that it creates, to concentrate our minds, and the fall of the axe, on PFIs and other perverse spending.

The way to heal England's economic wounds, is to
clean those wounds and make the country an environment in which healing is possible. This is where the Conservative Party and the Liberal-Democrats are currently showing a profound unsuitability for the task of nursing a wounded country back to health, because they are currently proposing every sort of spending cut, except to the really perverse spending that's doing us positive harm and where spending cuts will make everything work better. Preferring, instead, to deprive us of public services and proper defence of the realm. The reason for this is simple: Conservatives and Liberals do not want to root out and destroy Mr Blair's network of corrupt political clients, they merely want it to change sides.
(PS: and here they go!)

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