And The Governance Was Without Form, And Void

SUNDAY, JANUARY 17, 2010

And The Governance Was Without Form, And Void

Yesterday the Major had another of his increasingly frequent seizures. Comrade Brown claiming to be the champion of the middle class was just too much:

"How dare he! He's spent the last 13 years hunting us down like dogs! He's taxed us to buggery, destroyed our pensions, stuffed us with debt, banned our children from the top unis, dishonoured our womenfolk, seized our lands, burned down our golf clubs... and now he has the sheer brass neck to say he's our friend! Gaaaaaah!!!"

Of course, you and I understand that Brown was simply delivering another helping of meaningless pre-election drivel that will convince no one. But the poor Major takes these things to heart. He still clings to a quaint old-fashioned notion that Prime Ministers are meant to speak truth unto the nation - even when it's unpalatable. 

And maybe Brown has dragged his office down to new depths of moral decrepitude, although following Bliar, that seems improbable. Much more worrying is his obvious and painful inability to fill the space. However you look at it, he simply isn't up to the job. His presence has created a dangerous dysfunctional void at the heart of government.

This morning we get an alarming new account of the void from a group of 60 senior civil servants from across Whitehall. They've contributed to a study by the Institute for Government, and here are some of their comments:

“What comes out of No 10 is lots of barmy ideas. It’s the worst possible kind of policy making, which is ‘here is a problem, let’s have a kneejerk reaction to it tomorrow on what we’re going to announce’ and quite frankly the less contact with No 10 the better.” 

“All the worst bits of policy making come from the centre. It’s these people who think you change the world by publishing a strategy. And you don’t change a thing by publishing a strategy, it makes no difference whatsoever.” 

“It’s no great secret that Gordon is not strategic...a cacophony of silence and confusion... The centre [No 10] is certainly dysfunctional and the Cabinet Office is fragmented.” 

“It’s worse than under previous prime ministers. With Blair they did invite you to meetings, but not with Brown. They contracted into a little bunker. I had a very good working relationship with Downing Street under Blair but that changed when Brown came in and it contracted to a very small circle of people. You just got orders from Downing Street, not consultation, and that is still continuing today.” 

Now OK, these people are civil servants and they have their own axes to grind - including greasing up to their prospective new masters. But what they say squares very closely with what we see out here: a stream of increasingly preposterous announcements about meat soon coming off ration and happiness for all, the grabbing of every available grandstanding opportunity, and a total failure to address any of the huge pachyderms rampaging round our wrecked national room.
  
So what to do? 
  
Well, ditch hopeless Brown asap, of course. But apart from that? 
  
The Civil Servants have a suggestion: 

“The office of the British prime minister holds a concentration of formal power greater than that of almost any other country in the developed world. 
  
In contrast, the fragmentation and lack of co-ordination at the centre of the civil service — the Treasury, No 10 and the Cabinet Office — leads to an administrative centre that is relatively weak. This curious situation has created a strategic gap at the heart of British government which inhibits the ability to set overall government priorities and translate them into action.” 

Hmm. I think we can see what they want. A stronger centralised bureaucracy to balance the huge power of the PM. 
  
To which we say, not on your nellie. 
  
Yes, we can all agree that the British PM has far too much power - more than anyof his counterparts in other major developed democracies. But no, we don't want to counterbalance that with a stronger unelected bureaucracy, thank you very much. 
  
What we need - as we've said before - is first, a stronger legislature to counterbalance the power of the executive (we still favour a directly elected President, formally separated from our elected MPs - like the US), and second, radical decentralisation - most especially on the fiscal front. 
  
Centralised power on the extraordinary scale we've got in the UK is always a threat to our liberties and our prosperity. But when the hot seat is filled by an inadequate like Brown, our entire system of government simply seizes up. 
  
Now, WTF do we find a bold radical leader who is big enough to fill the space, but humble enough to know he has to give his power away?

SATURDAY, JANUARY 16, 2010

Without Touching The Sides

Worth £30 mill of anyone's money

When cuddly Alan Sugar was chairman of Tottenham Hotspur, he precisely captured the big problem with football club economics: all the money gets pooped out to overpaid prima donna players, passing straight through the club "without touching the sides". 

Which is why one of the key "metrics" employed in analysing football club finances is the wages/turnover ratio. During Sugar's time at Tottenham theaverage wage/tunover ratio across the Premier League soared from forty-something percent up to a scary sixty-something:

We can all see how it happens - revenues ultimately depend on footballing success, and footballing success ultimately depends on the prima donnas on the pitch. Nature therefore ensures that the money gravitates down through the alimentary canel and deposits itself in their greedy ingrate offshore accounts. And that's how in 2001-02 the Italian clubs ended up paying a totally bonkers 99% of revenue in wages. 

And talking of greedy ingrate prima donnas, it's bank bonus season again. 

So what percentage of bank revenues do you reckon get paid out in pay and bonuses? 60%? 70%? Given all the noise and fury, you might even guess an Italian job 99%.

But no. A recent analysis by the Wall St Journal reckons that although bankers pay and bonuses will soar by an average 18% this year, the overall cost of compensation and benefits will total an extraordinarily modest 32% of bank revenues, down from 40% in 2008 (figures refer to the 38 largest US banks and securities firms, but you have to guess the position won't be very different here). 

Wha!??! you squawk. That can't be right! The WSJ must be lying on behalf of its evil capitalist paymasters!

Hmmm... maybe. But most of these banks are public companies and the true information will be in the public arena soon enough to make lying unattractive. 

The fact is that bankers' pay is sky high not because they as individual bankers are holding their employers to ransom, but because bank revenues are up so strongly. Revenues have jumped 25% not in comparison with miserable 2008, but in comparison with booming 2007. Here are some current headlines:

Now, you and I and most of the non-banking world, understand that this extraordinary earnings boom is not down to the prima donnas on the pitch, but to us - the poor bloody taxpayers. We're the ones who've provided the loans, guarantees, and low interest rates from which the banks are profiting so handsomely.

And we did it not so the prima donnas could get wedged even more comprehensively, but so the banks could rebuild their capital reserves and start lending again to those famous hard-working families and viable small businesses. We are being taken for schmucks.

So what to do?

The idea of the moment is St Obama's new $90bn tax on banks. Yes, it's political, and yes, the cost may eventually get passed onto bank customers, but actually - and Tyler is amazed to hear himself agreeing with the Saint - it's A Good Idea Ltd. 

As we've blogged many times, we taxpayers ultimately have no choice but to guarantee the banking system, and it's only right that they pay us a proper insurance premium to compensate us for the risk. Yes, the costs may get passed on to the customers, but as in any line of business, customers should always pay the true cost of the service - we should not subsidise banking any more than we should subsidise manufacturing. 

And good for George for today embracing the insurance idea - he should step a plane across to Washington soonest to coordinate some details with the yanks.

But, as we've also blogged many times, we need to go further (eg see here). We cannot afford banks that are too big to fail, and it is a dangerous delusion to think we can solve the problem through better regulation. As we saw from the clownish antics of the FSA and the SEC during the bubble years, our regulators will never be that smart. 

One widely canvassed idea is to increase the cost of being big. Either through higher percentage insurance premia/bank taxes for megabanks, or through more onerous reserving requirements, Big could be made so expensive that it became commercially unattractive. The banks would then break themselves up into smaller units which we could afford to see fail. 

There is some merit in that idea. But we do need to remember the key historical lesson retaught to us by the Crock - failure can never mean retail depositors losing out. Otherwise the entire banking edifice collapses in a maelstrom of pavement queues and piles of cash stuffed away under mattresses. Only a bank's equity holders and wholesale depositors/bond holders can be allowed to go down.

Another idea - one we've supported many times (eg here)- is to split High Street retail banking away from investment casino banking, ie a new Glass-Steagall Act. The High Street banks would continue to enjoy a taxpayer guarantee on the bulk of their liabilities, but would be subject to significant retrictions covering both borrowing and lending. The casinos could do pretty well whatever they liked within the law, but if they got into trouble they could not come crying to taxpayers for a bailout. They'd be left to sink.

One thing's for sure, the banks cannot be allowed to carry on biz as usual. We taxpayers have had enough. And if the Saint and George are to be believed, our politicos have at least now realised they need to take some action. Another dose of political posturing will not be enough.

PS Other people's pay is endlessly fascinating. The world's highest paid footballer last year was reportedly a certain Mr Becks Golden Balls Beckham on €32.4m (£28.7m), although the vast bulk of that came from off-pitch ads for pants (pic). The highest paid on-pitch was Lionel Messi of Argentina and Barcelona, on €28.6m. Britain's best paid banker is reputed to have been Roger Jenkins of Barclays Capital, who is said to have coined £75m in 2006 (although in fairness, that slumped to a derisory £40m in 2008).