Monday, February 28, 2011

Narrow interests and Universal values

Times are tough in the world. The banking collapse has brought serious problems in the global flows of money, while the huge growth in Asia has put serious pressure on the price of commodities and energy, especially oil. Global food prices have been rising sharply as the result of several extreme weather events. Indeed this spike in food prices has clearly been a factor in the North African Arab revolt.

Even still it is a bit disappointing seeing the English Language press being so down-beat about the events in Libya. Instead of being inspired by the determination of the Libyan people to rid themselves of their vile dictator, there are endless articles about the "terror" of the expats and the fact that the oil price has been rising as a result.

Frankly a short term oil spike is a price well worth paying in order to get the Libyan people free from their bondage, and anyway, foreigners do not seem to have been the target of either side. It is not the expats who have been targeted by the desperate despot, but his own people. The courage and ingenuity that the Libyan people are showing is truly heroic. This is not a revolution in support of the Al Qaida death cult but in support of the Western values of democracy and mutual respect.

Instead of bemoaning the short term problems, we should be cheering on the Arab world as it finally unites in support of a more open and open minded political system. We should have the courage that our universal values are truly stronger and more attractive than either the oppression of dictatorship or the millenarian nonsense of the primitive fanatics. The peoples of North Africa are speaking the language of democracy and in the liberated areas of Cyrenaica and Tripolitania it seems to be the practice too, with citizens councils emerging to restore normal life. The restoration of the flow of Libyan oil would be set to be quite rapid- were it not for the fact that all the foreigners involved have run away.

What does it say about too many in the west that we would prefer the -as it turned out shallow rooted- "stability" of the criminal Gadaffi to the liberation of his people- for surely that is the message we are giving for as long as we are prepared to leave the Libyans to their fate at the hands of a regime which is now irretrievably lost.

The sacrifices that the Libyan people are making for their freedom are a noble message of determination to achieve the freedoms that we take for granted. We should be proud and delighted that democracy may yet set free the Arabs. This is not a moment for fear- it is a moment to embrace those who are seeking to build a new, tolerant, free and democratic system on the wreckage of the discredited dictatorships of the past. The revolutions 20 years ago in Central and Eastern Europe were not universally successful- at least not in Russia or the Stans, yet for most even there, they have unleashed undreamed of freedom and prosperity. There is no reason why that can not happen to the Arab world as well.

The West should embrace these revolutions, as the Chinese Government- fearfully- can not. We should remind ourselves that, for all its faults, the democratic way offers far more to satisfy the human spirit than the authoritarianism of autocrat, or of party, or of radical mosque ever could.

Friday, February 25, 2011

Musings about Britain from Continental Europe

Another small hiatus from blogging, the result of a fairly intensive travel schedule. This week, it was five different European countries, and as I write I am in the Swiss commercial capital of Z├╝rich. It has been some time since I was last here, but I note the renewed infrastructure investment: the spiffy new trams and the general air of prosperity that seems to be the birthright of the Swiss.

Alas that can not be said of London. From touchdown at the grubby and disorganized terminal 3 at Heathrow, until departure via the cramped London City airport, the sense is one of half measures and false economies. As I took the DLR out to City Airport I met by chance and old University friend who now works on Crossrail. Crossrail is a long overdue cross-London rail link. Yet he reports the considerable difficulties that this critical project is still facing. The money will run out before a quarter of the project is underway. Yet this rail link, which has been talked about for more than sixty years would still leave London way behind Paris, which has five such cross-city fast rail links: the RER. The North-South London Rail link, the Thameslink is desperately overcrowded, and it seems pretty clear that the Crossrail will face the same fate almost as soon as it is opened. Yet no one is discussing a strategic plan to enhance and develop public transport in London. Politicians seem to think that if they ignore the problem for long enough they will not get the blame. Alas this short sightedness is evident in so many ways across the spectrum in the UK.

The latest growth numbers - revised estimates for Q4 2010 were supposed to be better than the initial forecasts. The have proved to be worse. Despite the slump in Sterling, the recovery in Manufacturing has proved to be something of a chimera. In fact the UK no longer has the capacity the improve its position in this sector, so countries like China and Germany, which continued to invest in Manufacturing are now facing the future with far greater confidence, while the situation in Britain continues to decline.

In a word the decline of Britain rests on sloppiness.

Instead of doing a decent job, the desire of business and politics alike to get jobs done "on the cheap" has undermined the capital and the productive base of the entire economy. What kind of policy can argue in favour of a constant devaluation of the currency as a way to retain competitive advantage? I guess the answer is a policy that recognises that Britain remains fundamentally uncompetitive.

It is still a shock to understand the acceptance of failure that this implies. Once upon a time, the UK mitigated its decline by pointing out that it could "still" punch above its weight, in diplomacy or military power. The fact is that the monstrous inefficiency of the public sector and the pensions time bomb that is now finally beginning to explode will reduce living standards drastically for the coming generations. Those who retired at 55 on a pension they had not saved for have essentially stolen their money from the next generation which will now need to work for decades longer. The failure to invest has left the employment market for the young generation bereft of opportunity for those in the critical first few years of work. These people will be permanently poorer as a result. Meanwhile the physical infrastructure of the UK is so poor that it is putting off investment and reducing competitiveness to a dangerous degree.

Yet Britain can still fix its problems.

Heading out to City Airport I espy the new Olympic Park- it is nearly completed. Unlike the fiasco of Athens or Montreal, London is going to have the venues completed well ahead of the deadline. I feel confident that the Olympic Games will run smoothly, with none of the authoritarian overtones of Beijing: a true festival of the human spirit. Of course 2012 will also be Queen Elizabeth´s diamond jubilee, and I for one hope that the nation can unite in a joyful double celebration.

Nevertheless, it is clear that it is time for the UK to get focussed and serious about tackling its problems. In my view changing the electoral system, even to the compromise of AV is important because it sends the message that the wider necessary political reform is still possible. Without political reform, we will continue to have a political class that is shallow rooted and more focussed on PR than the greater challenge of real leadership that is needed if the challenges of weak infrastructure and declining power can be reversed.

The political class has been even more sloppy than our business leaders. It is time that the UK improved its level of self discipline and that is a challenge that the political leaders must address by example. Alas the antics of Ed Miliband, and to a lesser extent David Cameron and Nick Clegg do not give me much confidence that such changes can be made quickly.

Yet as the Arab world rises in revolt against decades of misrule, is it not too much to think that the British too can take their destiny in their own hands and force their political leaders to accept the challenge and face reality?

Monday, February 21, 2011

The point of an ethical foreign policy

After the fall of the regimes of Tunisia and Egypt and the protests across the Arab world, the Jasmine revolution now seems set to claim the scalp of the brutal and absurd Libyan leader, Gaddafi.

What a joy it might have been to know that British hostility to this evil and tyrannical figure had been unrelenting. After all, we have suffered much at his hands: support for terrorist attacks against us, including vigorous funding of the IRA. Whatever the actual truth of the Lockerbie bomb, the fact remains that a Scottish court convicted a Libyan state official of the crime. Gaddafi has long been an enemy of the UK.

So why did Tony Blair cut a deal with this monster?

American critics suggest that pressure from BP persuaded the former Labour PM that a deal would be much in the interests of the British economy. As the UK prepares to evacuate its citizens from Libya, many working for BP, such a deal seems a lot less useful than it seemed at the time.

As the long banned Green-Black-Red flag now flies in open defiance of Gaddafi's own totalitarian green banner, the days of this opera-bouffe dictator seem very numbered- as they certainly should be. Yet it makes me sick to my stomach that Britain appears to have sold equipment to Gaddafi that he has used to butcher his own people.

After the massacres in Benghazi and Tripoli, I imagine that Gaddafi will probably end dangling from a lamp post. It is hard not to feel a contempt for those who betrayed an ethical foreign policy, hypocritically believing that British interests rested on trade with a monstrous tyrant who was a proven enemy, rather than staying true to the traditions of freedom and democracy that underpin our society; principles that the Libyan people are- even now- dying for.

Wednesday, February 16, 2011

As safe as the Bank of England?

There has been much crowing amongst the Anti-Euro brigade in the UK over the past year. The structural problems of the single currency were said to be terminal, and there was much self-congratulation that the UK had managed to avoid such troubles by maintaining the independence of the Pound.

Now, however, the swagger has gone out of the Euro sceptics. The reason is not hard to find: British economic performance and monetary management on almost any conceivable measure has turned out far worse than our real comparable states in Europe. For all the gloating over the travails of Greece, Ireland or Iberia, the fact is that Germany, France and even Italy have weathered the economic down turn far better than the UK.

In Britain our inflation rate is peaking above 4%, and the direction of travel would be the same, even without the increase in VAT. Meanwhile unemployment is also rising strongly. Despite the recovery on manufacturing, the evaporation of large parts of the British banking system continues to have strongly negative effects. Meanwhile the huge increase in public sector debt has necessitated a severe programme of public sector cuts. So on inflation, growth, unemployment and on the deficit, the UK stands at the bottom of the class of the larger EU member states.

The whole point of maintaining an independent currency was so that interest rates could be adjusted to suit British economic circumstances. The problem is that the failure to intervene when the going was good has left the Bank of England with no room for manoeuvre in the downswing. The result is that despite the fact that inflation now rising strongly (now above 4%), the base rate remains at 0.5%- a record low. The fact is that with negative interest rates of -3.5% the Bank of England is debauching the currency and destroying the savings that will be necessary to pay for retirement. Instead of being a model of monetary probity, to off set the fiscal incompetence of Labour, they chose in the past to collude in the policy mistakes of Brown and Balls. Now, the fear is that any move upwards in rates would lead to a meltdown in UK growth. Yet despite this, growth is slowing sharply anyway.

The result is that Sterling has devalued by about 30% over two and a half years. Yet despite this boost, the country does not have the productive capacity to take advantage of export lead growth. So the fall in the currency is actually also feeding inflation because the UK imports so much. Meanwhile, even a rise in rates may not diffuse the housing bubble, while so many are forecasting that prices should rise again. The stage is set for a thoroughly poisonous mixture of low or negative growth, high inflation and increasing unemployment.

Meanwhile in the Euro zone, the structural changes that are also needed in the UK will now come through, even in the weakest five Euro states. At a time when the media and voters of Britain still seem inclined to listen to the siren songs of Labour promises of growth funded on the never never, it is worth noting that some countries, including even Greece, have begun to tackle the structural problems. We seem to be throwing away the breathing space that devaluation might have brought us.

The question then is: when does the UK stop devaluing?

At this point, it is not inconceivable that the Pound falls close to or even below parity with the Euro within a few months.

If that happens, then that will be the day that I will be asking those Anti Europeans who have been so quick to ridicule both me and indeed the very idea of the single currency for something of an apology. You had a chance to use the flexibility of a floating currency to address the structural problems of the UK: so far you have failed. When do you recognize the problem is not the currency, it is a fundamental failure of the economic structure of the UK ?

Monday, February 07, 2011

Labour shame over Lockerbie

At the time of the release of Ali Abdelbaset Al-Magrahi, there was considerable anger. Those who believed in the verdict of the court were outraged. others, like myself, were angry because the release ensured that evidence that might have been used in his appeal of his conviction would not be presented in open court. As a result, the conviction of one man acting alone- which seems at best implausible- will now continue to stand.

However, at the time I was prepared to defend the British government, since the release on compassionate grounds had both the force of the legal system as well as a certain natural justice.

Now, we have discovered that the Labour government did everything in its political power to ensure the release- going so far as to coach Al-Magrahi's supporters- including the odious Gaddafi- as to how to pitch their legal campaign.

Almost every assurance that was given by the Labour Ministers of the day was totally dishonest.

It is frankly despicable. A contemptuous rejection of the force of law and the deepest feelings of those still prepared to accept the terms of the original trial and most importantly of all, the relatives of the victims and survivors of the Lockerbie outrage.

In my view the decisions taken were little short of an abuse of office. It would be entirely appropriate for those involved to be investigated either by a public inquiry, or better still by judicial proceedings against them.

A political reform for Estonia

There has been some discussion on over the past few days about the differences between the political culture of the Nordic countries and that of the UK. Contributors were highlighting the higher levels of education in the region versus the vituperation that is the norm in the British political discourse. It is customary at this point to make some kind of self critical comment about the destructiveness of the highly personal and adversarial politics in the UK. However I don't entirely feel that this is justified. The fact is that the high seriousness of the debate in, for example, Estonia can be rather wearisome. Only at election results time do politicians seem to let their hair down- and the sight of bottles of strong drink on the election programs is a sign that some home truths may be spoken. There are honourable exceptions, politicians who cultivate a slightly controversial or jokey image, but in general politics is a ponderous, serious, even cumbersome business.

Sometimes, therefore, the sarcastic and acerbic politics of Britain can be a relief. It certainly allows the voters to tell their nominal leaders precisely what they think of them. The downside is that British politicians have to have incredibly thick skins in order to take the battering that is handed out to them. The result of that is that the personality types who enter British politics are fairly limited. Thoughtful, sensitive, introspective types need not apply. On the other hand some kind of sense of humour is probably essential.

In general, though, the political class of Estonia has a broader range of personalities than in the UK. yet there is one aspect o Estonian politics that clearly needs reform. The list system takes to much power from the voters and leaves it in the hands of the party apparatchiks. For example, several sitting MPs have been demoted on their Party lists in a way that makes it all but certain that they would not be re-elected. Meanwhile, several parties boost their votes by offering candidates that are well know, but who, for some reason- such as current membership of the European Parliament- are highly unlikely to take their seats. The point being that they would give up their seats to the next politician down on the party list. It is a practice that is highly controversial, but which continues, because it suits certain parties to do this.

In my view voters should be allowed to chose between candidates of the same party- which is one reason that I am firmly in favour of the single transferable vote in multi member constituencies. Amongst many other positives, it is fairly simple to vote: the voters simply lists the candidates in order of preference until they are indifferent. So voters can not only split their vote -should they chose to do so- they can also chose the candidate they most support within the party that they most support. More to the point, because the number of MPs is variable, the constituencies are fixed, so it is extremely difficult to gerrymander a seat in favour or one or another party: no more interminable boundary commission reviews. In the UK I see AV as step in the right direction, since the voting mechanism is the same: listing in order of preference, but there is only one MP elected per seat.

In Estonia, although the list system is proportional, the voters still do not have much more power than under first past the post, because the party selects the order that candidates are elected in. In my view, that is a right that more properly belongs to the voters.

Thus, after this General Election in March. I sincerely hope that the Estonians will consider two changes to their constitution: firstly to make the President directly elected, rather than indirectly by the Riigikogu or if the Parliament is deadlocked by the Constituent Electoral College. Yet more important still I think would be to change the electoral system to make it more responsive to the voters: in other words to ditch lists in favour of voter choice and the STV system.

Friday, February 04, 2011

Doing the right thing in Somaliland

I was pleased to see that Andrew Mitchell- the UK International Development Secretary- has increased the aid that the UK will be giving to Somaliland.

As I have noted in previous blogs, Somaliland deserves success in its quest for international recognition, and I believe that the UK should be leading the way so that its former colony can at last take its place as a fully recognised member of the international community.

As the impact of Piracy in neighbouring Puntland increases, it is more important than ever that the UK gives its support to the government in Hergeisa- and the visit by Andrew Mitchell is an extremely positive sign. Somaliland is a force for stability amid the wreckage of the former Somalia, and as the situation continues to be so unstable across the horn of Africa, giving both practical and -just as important- moral support to the freely elected government of Somaliland is a most welcome step.

As an old colleague of Andrew's from my days at Lazard, I am pleased indeed that he has taken a decision on a point of principle: the government of Somaliland is legitimate and fully supported by its people. I hope that he will take it further and ensure that the UK will now put its weight behind the process of international recognition -which in my view is long overdue.

Thursday, February 03, 2011

City State

Estonia is often described as a "City State". It is not really true, after all -territorially- the country is quite large, about the size of Belgium or Denmark. Yet given that half of the 1.3 million population lives in Harju County- the area in and around the capital, Tallinn- it is clear that the country is quite urban and quite concentrated. Yet, away from Tallinn, there are only four cities over 70,000 people, so the rest is small towns, villages, farms and forests.

Yet what we mean by a City is now being challenged by the staggering urbanisation taking place in China. There is now a proposal to link four or five already quite large cities around the Pearl River delta in Guangdong Province into a huge "mega-city" of nearly 50 million people. As in so many things, China is emerging as a pioneer. Urbanisation has been identified as something that provides net benefits to city dwellers, yet I for one can help feeling a little nervous about what this headlong dash towards the mega-cities of the future might mean. There are over 170 cities in China that are larger than the entire population of Estonia. Yet I ask myself, "what happens if something breaks down?". We know that Cities provide greater social and technological opportunities compared to rural dwellers, and they tend to be much richer too. Yet Cities are also rather fragile constructs of our civilisation. Cities are a product of the surplus of food that the countryside can create. Concentrating so many people into a relatively small space, also maximises the opportunities for human parasites: including diseases. While it has been nearly a century since the last pandemic, the fact is that periodic plagues are something that Humans must expect, and Cities are ideal transmission grounds for these.

There are further challenges- only yesterday, there was the news that the magma chamber underneath the Yellowstone super-volcano has been quite active. An eruption here would have planet wide consequences, while some cities, such as Istanbul and Tokyo are also sitting on highly active fault lines: both are overdue major earthquakes. So, although cities do bring benefits, they also carry risks- and there seems to be little awareness or preparation for dealing with these risks.

So, Estonia benefits from the relative urbanisation of its population, but it also benefits from the fact that almost all of the urban inhabitants have roots in the countryside. Most have summer homes in the country, where they grow fruit or vegetables, or keep beehives. Most Estonians eat organic, because they know of no other kind of food. The food processing that mega-cities rely on to feed themselves is nearly unknown here. Even at the airport food is freshly cooked from unfrozen and unprocessed ingredients

In the world of the mega-city, the kind of rural life that remains open to Estonians is becoming rarer- indeed it might almost be regarded as a luxury to have so much space. The roads are quiet, the forests silent and yet teeming with wildlife. As I walk through the mediaeval city walls and into the centre of Tallinn I breath the clean sea air- and I am very thankful for it.

Tuesday, February 01, 2011

A short lesson for (mostly) Labour politicians

I don' think it is too cynical to say that many, if not most, politicians sometimes misrepresent themselves. They try to deny things which they know may be true and they try to make their ideas or policies sound like more than they are.

Spin and hype are the stock-in-trade of the political huckster. So far, so unsurprising.

Recently, however, it has become clear that many politicians are not merely twisting the facts, they are actually totally ignorant of the facts. Over the past few weeks I have heard politicians suggest that the deficit and the the national debt are the same thing- the suggestion was that a fall in the deficit also leads to a fall in debt is a pretty fundamental error (of course a fall in the deficit only reduces the speed at which the debt is still rising). I have heard politicians saying that the deficit was 150 million (err... that should be roughly 150 billion) and that this represented 6% of GDP. Since the GDP of the UK is roughly a trillion that is untrue for either number. I have heard right wing politicians suggesting that the Euro has never been weaker (this comes after the Pound has fallen over the past two years from roughly €1.40 to roughly €1.17) and that British finances are dramatically stronger than the Eurozone- in fact they are dramatically weaker.

This false accounting though is something slightly more worrying than political misrepresentation: it is actual ignorance, and when their mistakes are pointed out, they have been embarrassed- they were actually unaware that what they was saying was simple nonsense.

On the other hand, there has also been the more usual kind of twaddle - this time from Labour. Labour appears to be suggesting that they will not now go ahead with the development of high speed rail in the UK, should they be re-elected in 2015. Leaving aside the vexed question as to why there might not be enough money in the pot- though, just for the record, it is because Labour borrowed way more than was sustainable during the course of the last economic cycle and spent it on cash benefits and public sector salaries, then, when the banking crisis hit, the cupboard was bare. The fact is that- as usual- Labour politicians can not tell the difference between current expenditure and investment.

Paying public sector wages is not an "investment" - it is not even an "investment in people", it is almost always a cost. An investment is something that increases asset value or output. Increasing public sector wage costs does not automatically lead to an increase in output. Only if productivity improves can such expenditure be regarded as investment. However the impact of the policies of Labour actually degraded productivity- so in fact costs increased and productivity fell- so there was less output for a higher cost: the exact opposite of what investment is supposed to do. Investment in infrastructure usually is investment, because it increases the value of a physical asset (unless it simply off-sets depreciation, in which case it is usually termed "maintenance"). The asset may reduce costs by relieving congestion or- as is the case with high speed rail- by increasing speed or safety it therefore increases efficiency.

You do invest in infrastructure, but -mostly, if not entirely- public sector salaries are a straight cost.

Yet the efficiency of the UK capital stock has been degrading for some time- and this too increases costs- less output is possible for the same capital. The failure to maintain infrastructure has led to Heathrow Airport turning into something close to an international disgrace. Meanwhile Aberdeen can not be linked directly by air to other major oil centres, such as Houston or Dubai, because the runway at Dyce is too short for intercontinental flights. Neither does Aberdeen have a road by-pass, so traffic in the city- a major source of British wealth- is extremely congested. Greens may suggest that the failure to invest prevents further environmental damage, but the increasing inefficiency of poor quality transport links also increases pollution.

At a time when countries like China are making huge changes to their infrastructure, the UK is undermining its own competitiveness by failing to modernise sufficiently. The squalor of much or Britain's cities is the direct result of a failure to provide efficient public transport links. And the failure to invest is the direct result of the fact that too many politicians do not know what the most basic economic terms actually mean.