Forward?

Now that Obama has won he has to get a grip on the US fiscal position. Unfortunately early comments from prominent Republicans suggest that they have not learned the lessons of yesterday and they will continue to obstruct. The lessons (some of them at least: I wouldn't pretend to know them all):
- voters don't like extremism. They admire conviction but not at the expense of working with others - just as people have to do every day in their lives.
- the world changes as does the electorate: it appears that the Republicans have forgotten that not all US voters are white middle class and retired.

Those are important lessons for the Tories here in Britain as well.

Today's the day

There’s two surprising things about the US election. One is just how much the two candidates (and their supporters have spent) on largely negative advertising. The second is how close it is. It’s not even clear that the result will be known straight away given the opportunity for legal challenges in swing states.

That is surprising given the euphoria that greeted Obama’s success just four years ago and the fact that he hasn’t done a bad job in almost impossible circumstances. He has acted with conviction on security matters, with common sense on foreign affairs and with some success in economic terms. This is despite inheriting a broken financialsystem and out of control wars.  He has faced a Republican party determined not to compromise on any economic issue – to an unprecedented extent - making the US deficit a real worry.

I suspect that neither candidate will act particularly differently on most issues so at one level, who wins doesn’t matter: economic growth will be slow but will happen and  although there’s a lot of intensity at the moment that will fade away for most people and life will get back to normal. But at another I quite strongly hope Obama wins.  I just don’t think that it would be fair for the Republicans, after four years of such bad behaviour, to succeed. And Romney’s behaviour on his “meet the allies” world tour hardly shows he is someone you’d want to do business with.

The hunt for growth

The lack of growth in the UK economy is worrying for all sorts of reasons; it hurts at an individual level for those who cannot get work and it hurts at a macro level: the deficit is increased because tax revenues are less and welfare payments are more and potentially this harms our credit rating and therefore the value of sterling and the interest we have to pay to fund the deficit.

The trouble is that there is very little the Government can actually do to increase growth. In economic terms, I think it has done one big thing well: it has sent a message on getting public sector spending under control. It hasn’t quite achieved getting it under control but it’s made more progress than most previous governments. This has had a positive impact of keeping interest rates low; had the steps not been taken the negative impact on the economy would have been horrific. But the trouble is that it has reduced confidence, it has made people nervous and that makes consumers and companies unwilling to spend money or invest.

In fact things aren’t too bad; I was in S Devon last month. Most pubs and shops were advertising for staff. There were almost as many cranes and skips as London in London. If you talk to small business owners generally about how things are going, the answer is usually “OK”. Not great – but OK. Businesses have adapted. But if they can, they are hoarding cash, they are not taking risks, and they are not investing. And if don’t have cash but want to invest then credit has dried up largely because regulatory policy limits bank lending.

So what should the Government do? It should recognise it can’t do too much. It needs to get credit flowing by reducing some of the constraints on banks. It should introduce no-fault redundancies to help employment. It should sound more positive. It should ensure there’s no more quantitative easing. It should develop small scale infrastructure projects. But the implication that it sees a third runway at Heathrow as helping is worrying: that would be irrelevant to growth now. The reduction of planning constraints on residential development could help but also conflict with the localism agenda many of us thought was an important policy.

But serious growth will only come from improved confidence. That will take time and will only come from working through the debt problems in the UK and abroad – especially Europe. In the meantime the Government needs to keep its nerve and not seem panicked.

Why do people do silly things?

A few weeks ago there were two announcements which had big implications for the companies involved and in different ways for the UK economy.

One was about the West Coast rail franchise, taking it from Virgin trains and giving it to First Group.

The second was the proposed merger between BAe and EADS.

I heard both when I was listening to he radio. Both instinctively felt wrong; it was obvious they were silly ideas.

For the rail franchise, it was obvious (I speak with experience of the bungles with the East Coast main line franchise) that insufficient weight had been given to the experience of the current operator and too much weight had been given to future promises of a previously unreliable operator. I didn't know just how badly the process had been handled, or how quickly it would unravel, but it was obviously wrong. Why couldn't transport ministers see that? How did they let it happen? It's easy to blame the civil servants who clearly made serious mistakes possibly driven by the fact that Virgin trains had previously negotiated too good a deal. But ultimately the ministers decide. I suppose you get wrapped up in a bubble and there's a limit to how much you can contradict the advice of full time officials. But this was so obviously wrong they shoud not have accepted it. The fact they did means they should not be ministers now.

BAe, given a downturn in defence spending, needs to consider it's strategic direction. But the companyis fundamental to the UK defence structure and its major clients are in the US. Its also a big UK employer. It's surely obvious that a merger with a primarily competitor  over whom the French and German governments have significant influence is going to be very high risk, in the best case, with major implications for UK defence security and for UK jobs. This is one where the Government should simply have said "don't even think about it" when they were sounded out, as they must have been. Yet there's a major lobbying operation which appears to be having some success. If the Government is lucky shareholder pressures may put a stop to the deal. If they don't then the Government belatedly needs to stop it. If not they'll regret it even more than the rail franchise -although by the time the consequences arrive they'll probably be out of office.

But again: why is this not obvious?

Why can't techies leave things alone?

I've just come back to the blog to find Google (who own blogger) have changed layouts, styles, fonts, the dashboard and so on.

Why? It worked perfectly well before. Its not obviously better now - it's just different and therefore less convenient because I (and at some other time in the past) other users have to re-learn how to finesse it to produce a desired result.

This happens so often in technology: one reason I no longer bother with facebook (and linkedin) is because they kept changing it.
And yet ... all those people working on the changes are doing it because they think it will make the world a better place. A shame it usually doesn't.

2012

2012
Had I been organised I’d have posted my thoughts on what was
important for 2012 before the year was over half way through – in fact I’d have
done it at the start of the year. I did generate the thoughts, I just never
wrote them down. But better late than never:

At home, the economy is the most important thing: will there
be a double dip recession and if so will it be long standing, will inflation
start to reduce, and will public sector spending come under control? Much of
the outcome will be determined by what happens outside the UK:
- in Europe where uncertainty about the Euro and the public
sector deficits and the safety of banks in some European countries is
depressing confidence and economic activity;
- in the US, where a stand-off between Democrats and
Republicans over pretty much everything but especially how to deal with the
deficit, is again damaging confidence and therefore investment;
- in the Middle East, where continued instability is a
threat to the world economy (and much else); and
- in China, whose growth can impact the rest of the world
because of its scale although in turn it can be influenced by events elsewhere.
I thought that there would not be a double dip recession
(although I now know I was wrong) but that inflation would come down and the
public sector deficit would continue to be brought under control albeit slowly.
Concerns are that the Government has prioritised rebuilding bank capital over increased
bank lending and that the Bank of England seems to have no policy prescription
other than Quantitative Easing. This does not help economic growth.

Four other matters are of interest:
Will the coalition continue to work reasonably well?
As it nears mid-term and the warm glow of doing something
fresh fades away under the pressure of events, the coalition will come under
pressure particularly from disenchanted back benchers seeking a media presence
in the absence of a seat in Government. As long as it remembers why it is
there: to focus ruthlessly on getting public sector finances under control: it
should continue. It is in the interests of neither of the parties nor the
country to have a minority Government or an election.

The Leveson enquiry
It has been pretty unedifying and a bit tedious to watch
resentful celebrities and forgetful politicians parade before the enquiry but
this enquiry is important. This enquiry is important for the country; press
freedom is precious and in an over-hyped atmosphere it would be easy to see it
diminished.

Feel good factors
The Diamond Jubilee and the Olympics ought to be good for
the country. I wish we hadn’t got the Olympics (too much of the original ideals
seem to have disappeared under rampant commercialism) but I hope we make the
best of them and the Jubilee should be something special. Hopefully the
spending around both events will offset the fact that many people won’t be
working during them.

Banks: as before, will we stop hating them?
See my 2011 comments.

Abroad, the factors I noted above will be important.

In Europe, the survival of the Euro (which I don’t doubt)
will lead to greater common Governance amongst the Euro area and potentially in
the Union generally. This will put pressure on the British position. Our
relationship with Europe is tense at the best of times – the facts that we’re
an island that’s never been successfully invaded, we have a common law culture and
an international economy mean that we approach the Union with a different
philosophy from the other major countries. Most of the political parties are
divided on the subject, and the coalition is particularly so. Although
renegotiation of our relationship is inevitable it is not a good time to do it
when everyone is in crisis.

In the US, the Presidential election is very close. The
Republicans have made America ungovernable and their candidate does not deserve
to win. But the Democrats have responded by ignoring the need to cut long term
spending commitments as part of sorting out the deficit. Obama inherited
probably the biggest mess ever but has not been able to sound convincing on the
economy. I hope he wins; I suspect he won’t.

In the Middle East, life is as ever a series of flashpoints. I visited Jordan and Israel earlier in the year, an excuse in due course to publish some of my pictures. The visit reinforced my view that the real danger in the Middle East is Israel: it may be closer to the West than the rest of the region but its intolerance could mean it will do something stupid in Iran.

2011 Reprise

2011 seems a long time ago, but as a restart for my blog Ithought I’d briefly comment on my thoughts for that year to see how relevantthey proved to be.

The AV Vote seemed important at the time, and it was.Had AV been supported it would have led to a major change in UK electionpractices. Pleasingly, it was rejected by a substantial majority which shouldput an end to this sort of constitutional meddling for a good few years (Iwrite with the broad philosophy that change is best avoided if things aren’ttoo broken because the unintended consequences are usually much worse than theproblem being solved). However, the result has (as I thought) led to moretensions within the coalition Government because the to keep their supportersquiet the LibDems now have to appear to be getting more out of the arrangement.I think the differentiation between the parties would have happened in anyevent: because Government is harder than people think, frustrations develop;because the next election always gets nearer; because the initial euphoriawears off. But it has happened earlier than otherwise, which is a shame, and policieswill be impacted by posturing rather than practicality. An example is thatClegg and some colleagues are now pushing House of Lords reform. Yet the Houseof Lords is one of the few parts of Government that works well.

The slight reduction in the growth of public expenditure(aka The Cuts). Only history will tell us the outcome; it’s clear that someprogress has been made in reducing the growth in public expenditure but thereis a long way to go before we have a balanced economy.

The impact on the economy

I said the key would be confidence and it is this which hasbeen lacking. Although a significant number of jobs have been created by theprivate sector – almost as much as predicted – people and businesses lackconfidence. Some of this is because of the global economy, because of the europroblems and some because the news, and the message from many in Government, isdepressing. The Government has a difficult task: it has to be negative to keeppopular support for what it is doing but it can’t be so negative as to putpeople off; I think it had the balance wrong. This meant people and businesses didn’tspend or invest. All this coupled with a banking system that is not lending meant2011 saw very low growth.

But it could have been much worse. We have benefitted as acountry from very low interest rates, which have also stopped individuals withhigh borrowings from defaulting and creating further debt problems. The tripleAAA rating that we kept throughout the year has saved us from having to paymuch more for our borrowing leading to much greater public spending cuts and areally serious decline. We kept it because of the focus by the Government onpublic spending cuts to the extent that they convinced the world that theymeant it.

So the cuts are working although a lack of confidenceprevents growth.

The impact on social cohesion

I expressed concern over whether the apparently randomnature of the cuts would reduce the broad public support for them.

This didn’t seem to happen; the public still generallyunderstood the broad efforts of the Government. But there were damagingimpacts, in my view because the public has never accepted the cause of theeconomic crisis: it feels resentful because it is suffering because of others,particularly bankers. I think it is would be right to be resentful becauseothers have done better through the crisis, but it needs to look in the mirrorto find the cause. The general mood is to be ready to react with harshjudgement when things go wrong: the hype about press behaviour and the Murdochempire was a good example in 2011. And the riots showed how easily things cantip into the wrong direction. But although the country seemed tense it alsoseemed accepting of what was being done.

The Royal Wedding

I thought this would be a good news event which would boostthe economy; it was good news, and was brilliantly handled and probably helpedbring people together but sadly didn’t seem to help the economy. I describedthe forthcoming Olympics as a damp squib. That now seems churlish but I suspectit would be better for the economy had it been in Paris.

Bankers

I hoped that banker bashing would diminish – because of theimportance for our economy – and I was wrong. As in many other posts I tried toexplain why we need to understand the faults of banks if we are to put themright.

Freedom of information

I got the theme right: this was an important issue that ranthrough the year. My focus was on Wikileaks and the need for the privacy ofinformation to be respected, although not at the expense of freedom ofinformation.

The big stories were contradictory: the ability of thepowerful to use injunctions to prevent information being published. It appearedfor a time that a few members of the judiciary were determined to prevent pressfreedom, but eventually a combination of political pressure, Private Eye,apparently unconnected stories and pictures in the press and finally Twitterand blogs saw most of the injunctions fail to the chagrin of the odd footballerand actor.

However something much more worrying for freedom ofinformation then happened: a combination of such deep jealousy of the successof News International newspapers by a failing newspaper, the Guardian, that itpublished lies which subsequently had to be corrected and a bitterness byelements of Labour over the Sun’s change to support the Tories saw an outcryand the establishment of the Leveson enquiry into the operations of the pressand the relationships between the press the media and the police. As withbanks, the politicians found it convenient to throw some mud at someone else.Phone hacking is what the press should do: there job is to expose what peopledon’t want exposed and we should be grateful to them.

Again, it’s too soon to say what the outcome will be, but2011 was not good for a free society.

The Euro

I thought it would survive and it did. Bruised, and with anuncertain status in the future, but it’s still here.

The situation is not good for Britain in two regards: oureconomy suffers as our largest trading partner suffers and the problemsencourage some of the sillier members of the Tory party to destabilise theGovernment by trying to push for withdrawal from or renegotiation of theEuropean Union.

“AfPak”

As the west tires of Afghanistan, Pakistan continues to be apowder keg trusting no-one including itself. The instability in the Middle Eastis probably helpful: it shows that over time people can defeat military-sponsoreddictatorships – although at much cost and stability will take many years.resolved.

China

I said:

It faces three broad questions: how it controls the economywithout an excessive boom leading to bust (many think this is inevitable); howit balances a growing middle class and personal wealth with state control and alack of political freedom; and how it chooses to use its influence in worldpolitics – whether it continues to be largely impartial to world events orwhether it seeks to use its influence – and if the latter, how. We will all beimpacted by those questions.

We still are: little changed, for good or bad.