Bad outcomes

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bad-outcomes

I'm beginning to wonder whether any government programme or regulation actually helps the deserving groups that it is advertised as helping. Too often, I think, they help rather well-paid administrators, anti- poverty lobbyists, special interest groups and the friends of politicians.

Take higher education. It is heavily subsidised by taxpayers because it is supposed to help the whole country. But does it? By far the greatest beneficiaries are students themselves. The association of university heads has calculated that, over a lifetime, graduates earn £160,000 more than non-graduates. But graduates leave university with an average debt of just £23,000. That's a pretty spectacular return on investment.

Gordon Brown used to spend much of his available spleen, which was considerable, on chiding the universities for taking too many students from well-off families, and too many with a public school education. Try as he might, with all kinds of financial bullying and incentives, he just couldn't make it any different. So it's a double imbalance; not only do we subsidise universities that raise the incomes of their graduates well beyond the benefit to anyone else, but those students also come from better off backgrounds too. The young person who leaves school to become a bricklayer in Bootle pays higher taxes to send Old Etonians to Oxford to become Prime Minister.

If the universities were privatised, this would change in short order. For a start they would probably introduce, like the private University of Buckingham, snappy two-year degrees that kept down the cost and made student loans less daunting. If they charged those who could afford it realistic fees, and used the money for bursaries to gifted but poorer students, it would do more to open up opportunity, increase access, and spread benefit through the whole country than what we do today.

And what is true of universities is probably true of other government programmes. If you really want to help the people you say you want to help, rather than well-off people and public-sector administrators, the market can probably help you do it far more effectively than some public sector programme.

Socialism is dead, get over it

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socialism-is-dead-get-over-it

What with the collapse into stinking rubble of the Soviet style socialist economies and societies back in '89 to '91 there's not been a great deal that supporters of socialist ideals can point to as successes of such ideals. No one's (sorry, we can find apologists for absolutely anything, so very few) pointing to North Korea as the blueprint for a desirable society and while Cuba has its praise singers no, "Sure, they've no freedom and nothing to eat but they do have free health care!", is not taken as a valid argument in adult company.

So large scale, countrywide, imposition of said socialist principles is something that's been tried and no, it doesn't work. But what about the small scale? Might it be possible to reorder society from the bottom up? Looking at the Israeli kibbutz movement, it would seem not:

Today, of the 273 kibbutzim in Israel, only about 60 still operate on a truly communal basis, in which all members are paid the same basic sum whatever their work, with services provided by the collective. Most of the rest have introduced reforms in response to what the Kibbutz movement calls "a severe socio-economic crisis [that] threatened the future of numerous kibbutzim – they owed huge debts to the banks and thousands of young people were leaving the communities. The kibbutzim were in danger of falling apart." The principal reforms were to introduce differential wages and privatise some of the services........But the "earthquake" was the introduction of differential wages. It turned the kibbutz philosophy on its head. "The jobs we once thought were the elite jobs – physical work in the fields and orchards – turned out to pay the least," recalls Ney. Managers were paid more than labourers, and productivity was rewarded.

It's worth reading the whole piece. Without a price system no one knew what was the most productive use of labour: without a price system there was no rationing of resources. Now there is a place where properly communal living is possible, where Marx's from according to ability and to according to need works: the family. But even there it's tightly constrained as anyone who has cousins knows: as Haldane pointed out, the sacrifices we'd be willing to make for two brothers would require 8 cousins to extract from us.

Now this sort of communal living, if it won't work with an all volunteer starting population, with people entirely raised within this egalitarian ethos, won't work even when motivated by the building of a new country and new way of life, well, I think we can say that it's been tried in the circumstances most favourable to its success and that failure shows the failure of the basic idea, not of the particular circumstances. We're just not going to make this egalitarian communalism work with human beings at any scale larger than the family.

We should be careful of the baby/bathwater problem though. One of the historical strands that makes up British socialism is the success of various communal and community movements: the mutuals, friendly societies, co-ops (and Co-Ops), those things which so enriched life in this country. That people will group together to achieve a certain task, voluntarily collectivise some part of life is just fine: it's when all of life is so organised that it seems to go wrong.

But then voluntary collectivisation of some part of life is hardly an exclusively socialist notion, we could use Burke's "little platoons" as an equally apt description of such actions.

But it does seem that we've tested this radical egalitarianism, at the micro scale and the macro, community and nation, both forced and voluntary, and it just doesn't seem to work. So sorry to those who still believe in it all but socialism is dead: get over it.

Madsen on Philip Green

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Faced with years of reckless overspending by their predecessors, the new government has rightly decided that it needs a no-holds-barred assessment of how much of this is simply wasted, how much is unnecessary, and how much could be spent more efficiently.

Dr Butler on Coffee House

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dr-butler-on-coffee-house

Why this is no time for salami slicing.

A win for the people

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 The Coalition government should be lauded for Friday’s announcement of a plan to permit people to exercise control over inordinate council tax hikes that have increasingly squeezed the budgets of English households across the country. Local Government Secretary Eric Pickles announced his intention to allow people to decide through a referendum process whether to accept or reject council tax increases that exceed the rate of inflation. This is expected to be in place by March of 2012. Under the current system, Whitehall decides when an increase is “excessive” and must be capped. The move is positive for two reasons: it will likely arrest the dramatic increase in such taxes, and will allow people to better control their local governments.

First, the growth of council taxes, which has been unacceptably high, will at long last be controlled by the measure. Council taxes in England have nearly doubled over the last decade; the average council tax per dwelling in the country has increased from £656 in 2000 to nearly £1,200 today. Last year, the Telegraph reported that the increase in council taxes over the preceding decade outpaced inflation by a factor of four. That the referenda, which can be costly to administer, will be funded by the councils themselves will provide significant incentive for councils to make difficult budgetary decisions instead of irresponsibly raising taxes and further burdening families.

Second, the measure puts people back in control of their local governments. The central government is ill suited to make determinations about tax rates in local communities. Whitehall does not have sufficient knowledge of local concerns and cannot make appropriate determinations about which tax increases are “excessive” and which are acceptable. Such control belongs to the people, who know their communities much more intimately than bureaucrats in Westminster. Local government needs to be checked in some fashion, and it is only logical that such a check should come from the people most affected by its decisions.

The recent announcement is a heartening indication that the Coalition government has faith in the ability of communities to manage their own affairs. The referendum plan is a step in the right direction that further empowers the people, and simultaneously forces governments to make the crucial tradeoffs that English families must make everyday.

If only they knew what they were doing

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You don't have to go very far these days to find those telling us that the solution to all woes is more regulation. That government, that collection of solons, the wise and the caring in collective action, can fix all these sharp edges of life for us. Leave aside for a moment whether this is desirable or even theoretically possible and look at what happens in reality. When "fixing" the financial markets through regulation, the Dodd-Frank law has just closed down the entire market for securitised loans.

Ford Motor Co.’s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday. Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law. The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress.

 The trouble is that asset-backed bonds are required by law to include ratings in official documents. The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.

Now it's even possible that closing down the market for securitised loans is the right thing to do, not that I would agree with such a plan. It's also even possible that if regulation was cooked up, drafted, by solons, by the wise and caring in collective action, that it would be a good idea.

But when regulation is in fact put together by whoever looks best kissing babies, when regulation is 2,300 pages which no one single person has actually read, no, not even those voting on it, let alone understood, well, perhaps regulation of this sort isn't all that good an idea?

And given that this is how regulations are put together, this is how our laws are made, why are so many people convinced that it's a good idea?

Fixing defence procurement

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Bernard Gray was our guest at a Power Lunch in Westminster yesterday. He now runs TSL education, but he spent two years in the Ministry of Defence, where he directed the Strategic Defence Review of 1998, and he has maintained an interest and expertise in defence. Now that another Strategic Defence Review is underway, his expertise is of course in great demand, and there were many other experts around the table eager to hear him.

One of the points that was raised around the table is that no private company would run itself the way we run defence. A private company looks at its market and its own production systems all the time. Managers will be tweaking things each day according to the circumstances of the moment, and the board will be meeting every month and will be slowly changing the company's priorities to fit the trends they see emerging. But with defence, we have one huge correction every ten years or so. No wonder that we end up trying to fight in Afghanistan with equipment designed to fight the Cold War in Eastern Europe.

Another interesting difference from private companies is that the directors of private companies are personally accountable for the actions they take. If they act beyond the law, they get prosecuted. Even local councillors get surcharged if they spend local people's money in ways that are outside their legal powers. Whitehall doesn't work that way, of course. Civil-service mandarins can order new ships or planes knowing there is no money to pay for them, or tear up equipment orders despite contracts being signed, and know that the only comeback will be a couple of hours' hard time in front of a Commons committee. Isn't it time we made our civil servants – in all departments – legally responsible for their actions?

Eamonn on Platform today

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Big Society sounds better than Big Government - but the Government must not try to direct social activism.

Tackling the big bang department

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As the Coalition Government gears up for big spending cuts, much of the focus is on the Ministry of Defence (MOD)’s annual c£50 billion budget. How Trident’s replacement is financed is important but its impact on the MOD budget for the next few years should be marginal. Instead, the quest for large mid-term savings should focus on the MOD’s procurement division, whose performance since the 1960s has been dire – epitomised by the long-running fiasco over torpedo development.

Indeed, the much-praised Gray Report concluded that the average cost overrun for major procurement orders was 40% - and 80% from the first estimate – whilst the time overrun averaged a staggering five years. Recent soundings indicate that the aircraft procurement budget looks most likely to be slashed – and rightly so. Even BAe Systems seems reconciled to cancelled orders for Typhoon fighters. Other aircraft purchases may also be cut back or deferred, including orders for the Airbus derivative A400M, for F-35 JCA planes and for the hyper-expensive Future Strategic Tanker Aircraft.

The Royal Navy is unlikely to escape cuts although the indications are that both aircraft carriers orders – the Queen Elizabeth and the Prince of Wales – will survive the cull, although the latter’s role may be redefined. Given the deteriorating situation in Afghanistan, the Army expects considerable protection – its confidence may be vindicated. Nevertheless, the Treasury will expect savings from the Future Rapid Effects Systems (FRES) programme.

Understandably, the infamous bureaucracy at the MOD is a target for cost savers. Job cuts and a crack-down on pay increases are widely anticipated. The MOD’s cash flow could also be boosted by privatisation initiatives. The National Audit Office has valued the MOD’s estate at c£20 billion spread over 4,000 sites. Surely, some of these sites should be sold.

Where will the MOD knife fall most sharply – aircraft procurement?

Taxpayer Value: The New Whitehall Board Game

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In Gordon Brown’s day the word “cuts” was unmentionable. Now politicians talk of little else. Michael Gove has a new list for every day of the week. Civil service mandarins will be suggesting, in Yes, Minister style, cuts they know to be unacceptable in order to protect their own interests. For example, the MoD will be volunteering cuts in the armed forces while ignoring their own numbers. We have nearly as many civilians and elderly military personnel driving desks as we have active armed forces.

For a dispassionate analysis of how “Taxpayer Value”, i.e. better public services at less cost, can be improved see Taxpayer Value: Rolling back the State, published on line today. After some general principles it reviews the opportunities for departmental savings, primarily 265,782 staff (27% of the total), department by department and for quangos. Front line staff, devolved and local government are not included. This is just a reduction of bureaucracy. We do not suggest asking fewer people to do the same work: the key is to make bureaucratic involvement itself redundant. The improvement in public services will be even more valuable than the costs saved.