The problem with a National Wealth Fund
It is entirely true that Norway has a ginormous National Wealth Fund. It would be fun if we had one too. That we don’t was really about the fact that we’re a much, much, larger country and economy than Norway. So, the flow of revenue from North Sea oil and gas into our economy was, proportionately, very much smaller. Even so there were those who worried - righteously - about the effects upon the exchange rate of all those exports of that oil and gas.
Which is the actual problem a wealth fund is trying to solve. Yes, it’s lovely if there’s some natural resource that the world wants to buy. Mere tricks and happenstances of geography provide and income to those who live above it. But if that amount is “too large” then the foreign exchange rate will rise so much that it will choke off all other domestic economic activity. First by making exports of goods in more competitive marketplaces too expensive, then as the resource gets larger killing even domestic production for domestic consumption in favour of imports.
The solution to this problem of geographic beneficence is that national wealth fund. To avoid what is called “Dutch Disease”. The defining feature of such a national wealth fund it that it is not allowed to touch that domestic economy. Indeed, the funds gained are never even transferred into the national currency.
The whole point of a National Wealth Fund is that it doesn’t invest in the domestic economy. So clamouring for a national wealth fund that does invest domestically is really very much missing the very point of the creation in the first place.
Of course, it’s wholly possible to insist that acshully, government will invest really profitably and so it should do so whatever we call the fund. At which point we ourselves would call for a little more proof, evidence of, the contention.
First as tragedy, second as farce
So there’s a proposal to reintroduce conscription then:
Every 18-year-old will be required by law to sign up for a year of National Service under plans unveiled this weekend.
Sigh. The first and most obvious point is that conscription is slavery. It might be slavery to the state, might be slavery to society but helotry is still slavery. So, let’s not do that.
But what moves this from tragedy into farce are the following two points.
We’ve, around and about, 800,000 18 year olds at present. The armed forces are, in total, some 138,000. The Navy, as with last time around, will take between none and very, very, few (stopping bored teenagers from drowning takes too much effort). The Air Force, perhaps some, but obviously the great bulk will be in the Army. Of those who decide to take the military route that is. Yes, we know, the British sergeant is incomparable and all that but we really simply do not have enough of them to cope with that influx.
The “community service” aspect:
Subbotnik and voskresnik (from Russian: суббо́та, IPA: [sʊˈbotə] for "Saturday" and воскресе́нье, IPA: [vəskrʲɪˈsʲenʲjɪ] for "Sunday") were days of volunteer unpaid work on weekends after the October Revolution, though the word itself is derived from суббо́та (subbota for Saturday) and the common Russian suffix -ник (-nik).
The tradition is continued in modern Russia and some other former Soviet Republics. Subbotniks are mostly organized for cleaning the streets of garbage, fixing public amenities, collecting recyclable material, and other community services.
The first mass subbotnik was held on April 12, 1919, at the Moscow-Sortirovochnaya railway depot of the Moscow-Kazan Railway upon the initiative of local Bolsheviks. It was stated in the Resolution of the General Council of Communists of the Subraion of the Moscow-Kazan Railway and Their Adherents that "the communists and their supporters again must spur themselves on and extract from their time off still another hour of work, i.e. they must increase their working day by an hour, add it up and on Saturday devote six hours at a stretch to physical labour, thereby producing immediately a real value. Considering that communists should not spare their health and lives for the victory of the revolution, the work is conducted without pay." This subbotnik prompted Lenin to write the article The Grand Initiative [ru], where he called subbotniks "the actual beginnings of the communism".
On April 12, 1969, to celebrate the 50th anniversary of the first Subbotnik, the Soviet Union revived the concept and millions of citizens volunteered for extra work at least as late as 1971.
That a manifesto pledge in a British election is derived from a 1919 “Resolution of the General Council of Communists of the Subraion of the Moscow-Kazan Railway and Their Adherents” is farce, no?
Now add in that this isn’t coming from the CPGB, the CPB, the NCP or even the CPB (Marxist-Leninist) but from, well, you guess…..yes, farce.
Mr. Chakrabortty has a plan
We’d not say we endorse the details but the base idea is correct:
The big picture is that the UK has been through a shockingly bad five years, in which people are on average worse off than they were at the start of this parliament, even while taxes are reaching a record high – and still rising.
….
Analysis by the Institute for Fiscal Studies suggests that, whichever of the two parties comes to power in July, day-to-day spending on everything outside health, defence and education is promised to fall by around £20bn. That is roughly equal to shutting the entire Home Office, or closing the Department for Environment, Food and Rural Affairs and the Department for Culture, Media and Sport. The next time a journalist interviews a Labour frontbencher they should ask which of those options they would prefer.
Taxes are indeed high and rising. Government is swallowing ever more, to the point of too much, of everything that everyone does. Changing this would be a thoroughly good idea. Partly because if people retain more of what they do then more will be done thereby boosting growth. Partly simply because people retaining more of what they do is a good idea in itself.
But it’s not possible to shave a little here, pare a tad there. Government, bureaucracy, does not work that way as C Northcote Parkinson so memorably analysed. The answer is to simply stop doing something. To close, entirely, some arm of the bureaucracy. Perhaps only catch and release for the bureaucrats but otherwise the Carthaginian solution - raze and plough with salt.
To reduce government expense means to simply remove government from some to many parts of our lives. DEFRA, DCMS, why not?
It is not possible to merely cut government budgets and therefore taxes - it is necessary to cut government.
The advantages of medieval farming
As The Guardian points out, there are some:
Farming is often seen as inimical to biodiversity, but these thin strips of land tell a more complex story. In the nooks and crannies of medieval farms, like the Vile, a wide range of plants and animals would have found the conditions they needed to survive. Ground-nesting birds could find cover and camouflage in the fields left fallow – something that was done every few years to allow the soil to recover. Baulks offered safe passage to small mammals as they navigated the cultivated land.
If wildlife is what you want then farming inefficiently is just great. As they also - rightly - go on to point out this isn’t useful to us today. If we farm inefficiently then billions will die of starvation. So The Vile is a useful example of the past, not something to be copied today.
Except in one interesting manner:
Studies suggest that hay meadows managed for nature are ultimately poorer in species than those tended to produce winter fodder. This is because the decisions of a hundred individual farmers, tailored to the precise conditions of their land – soil, shelter, wind direction, altitude – create more diverse landscapes than a set of centralised rules.
Or as we can put that - individuals deploying their own assets to maximise utility produce a better outcome than central planning. Yes, OK, that’s an, erm, plan that we can run with don’t you think? Those with the local knowledge should be left to apply that local knowledge to their area of expertise, their locality?
Not that the Guardian would ever admit it but one of those advantages of medieval farming is to prove Hayek right.
The planners still aren’t grasping the problem with planning
That the country desires more housing should be obvious enough - housing is expensive meaning that people would rather like more supply so that prices come down.
So, some planners at least are thinking that more housing should be built. That’s an advance from the previous situation where all too many seemed to think that the problem was hoarding by the capitalist elite or some such. But while an advance we still have very much further to go:
Labour’s plan for new towns looks likely to focus on the Midlands as much as England’s overcrowded south-east, with planners already considering areas near Nottingham, Stafford and Northampton, the Guardian understands.
Why build houses where no one wants to live?
This is not, despite the determined southernness of this particular author, some dismissal of the Midlands as being north of the Marylebone Road and therefore in reality somewhere Oop North.
We have an indicator of where people - the people who actually want to live in them - desire houses to be built. Where currently houses have high prices. That’s where the demand is, as evidenced by the prices - QED. So, if we’re to add more supply in order to bring prices down then we need to build the houses where prices are high not out in the middle of a field near where prices are already comparatively cheap.
One of those problems with planners is simple delusion. Why build additional houses where they’re currently cheap instead of where they’re expensive?
An interesting implication of happiness economics
Happiness economics is that idea that we shouldn’t prioritise mere economic growth, or GDP, but should instead decide to run policy by whatever makes people happier, or even happiest. That this is already incorporated into standard free market economics - everyone gets to build their own path to utility maximisation - gets lost by the ideologues. But, you know, let’s take the initial claim - happiness is what should run policy - and see where that takes us.
Clearly, we do need to have government - we are not anarcho-capitalists. There really are some problems that have to be solved and which can only be solved by governance. That, in turn, means that there must be tax revenues to pay for government. Obviously, much less than currently collected, much less governance than so badly done at present. But still, some, a modicum.
Adding that happiness idea to Colbert’s collection with the least hissing tells us something interesting.
Inheritance tax is the most unpopular tax in the UK, according to polling, despite less than 5 per cent of estates being liable for the tax, according to a House of Commons research briefing in March.
We will increase happiness by collecting taxes the least unpopular way. Therefore happiness economics insists that we must abolish inheritance tax. Sounds like a plan to us - Action This Day and all that.
It’s possible to note that the usual promoters of happiness economics don’t in fact say that. Which does make us think that perhaps the aim is to increase the happiness of the promoters, not the society which makes up the promotees. Which isn’t, at all, the way to run a democracy now, is it?
They’re not being serious about climate change
Yet another insistence that the oil companies are blah blah (cont pg 94). It isn’t, of course, the oil companies that create emissions, it’s people using fossil fuels to cook their dinner, transport themselves around and keep their homes toasty.
Major oil companies have in recent years made splashy climate pledges to cut their greenhouse gas emissions and take on the climate crisis, but a new report suggests those plans do not stand up to scrutiny.
The research and advocacy group Oil Change International examined climate plans from the eight largest US and European-based international oil and gas producers – BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, Shell and TotalEnergies – and found none was compatible with limiting global warming to 1.5C above pre-industrial levels – a threshold scientists have long warned could have dire consequences if breached.
The fault is not in our companies but in ourselves, Dear Brutus.
But there’s another issue illustrated here. Those doing this complaining are not taking climate change seriously themselves.
The authors broke the assessment’s criteria into three categories: ambition to curb fossil fuel exploration and production, integrity of methods used to curb greenhouse gas emissions, and commitment to overseeing just and “people-centered transitions” away from fossil fuels.
What is that “just and people centered” doing there?
All eight firms also failed to “meet basic criteria for just transition plans for workers and communities where they operate,” and none met “basic” human rights criteria. Though some have human rights policies on the books, none have demonstrated sufficient plans to adhere to them, the authors say.
Sure, we think a just society is a good idea. We might - almost certainly will - differ on the definition of just that should be the gaol but still. So too we think human rights are important but we’re still hung up on that idea that the only rights are those negative ones, not the positive that are insisted upon by so many.
But now think through the climate change pitch itself. This is such an imminent emergency that we’ve simply got to change everything and right now. No, we don’t believe it but accept it as a rhetorical point for a moment. So, OK, that means we’ve got to do everything right now. Without worrying about those other things - just transitions and equitable societies and so on. As with actually being at war it’s necessary to prioritise, obviously.
But here we’ve got the insistence that the “people-centered” part is just as important as the actually beating climate change part. Which is a downgrading of the importance of dealing with climate change. Therefore the people making that claim aren’t taking climate change seriously, are they? And, of course, to that same extent nor should we.
Another way to approach the same point. If just and people-centered and so on are of equal importance to climate change itself then don’t we have to have the debate on what is just and people-centered? Like, say, liberty, freedom, capitalism, markets and the inequity that seem to be associated? Why is it only that one moral view that is being considered?
That industrial policy with strict conditionality
As we all know the latest irruption of the Tutto Nello Stato idea is that if we just got the really intelligent people to plan everything for us then life would be better. Not that this has ever worked anywhere but hope springs eternal.
The most obvious problem is who gets attracted to such power? Even if we do accept - we don’t, which will come as little surprise to regular readers - that having those Rolls Royce minds doin’ all the thinking for us would be beneficial. A major problem is going to be that power attracts those who desire power like sh - ah, no, this is a family think tank - honey does flies. And there really is no indication, let alone guarantee, that those who desire to exercise power are those with the Rolls Royce minds.
This is a concept which we can subject to empirical testing:
The number of new apprenticeships has fallen by up to two fifths since the introduction of the government’s “broken” levy system, new research shows.
There has been a 41 per cent decline in the number of apprenticeship starts for those under the age of 19 since the scheme came into force, according to analysis by the Chartered Institute of Personnel and Development (CIPD). For those aged between 19 and 24, participation has fallen by 36 per cent.
The levy, introduced in 2017, requires employers with an annual wage bill of more than £3 million to pay 0.5 per cent of payroll costs into a fund for training. It has come under fire from businesses such as AO World, Timpson, Tesco and the Co-op, which have argued that inflexibility, unsuitable courses and programme lengths are the biggest barriers.
As a result £4.4 billion raised by the levy had been kept by, or returned to, the Treasury over the past five years, rather than being spent on apprenticeships. It has also led to a decline in training opportunities and to the emergence of lower-quality schemes.
Government taking more control has led to less and worse. This is not evidence in favour of government taking control. Even that saving grace of there being less of what is now worse is cold comfort.
Industrial policy, even with strict conditionality, fails out in that real world. Possibly because of the complexity of the economy, the impossibility of the centre ever having enough information and so on - a Nobel was awarded for this insight do not forget. Or, it could just be that those who desire to exercise that policy power, conditionality and all, have Trabant minds.
Could be, could be, and we would at this point make mention of how we’ve met and even spoken to an awful lot of British politicians and civil servants. Papier mache that sounds like angry bees rather than smoothly purring elegance - it is possible to take the car analogy too far but we’re not sure we have, not yet.
Or to be less jocular. To test how more government would improve the economy compare with how well current government affects the economy. Well, you want more of this?
We can’t say we’re surprised by child poverty
Torsten Bell rather gives the game away:
….concerns not just of 1990s politicians but of anti-poverty campaigners too: the two great and equal evils to be alleviated were pensioner poverty and child poverty. The inequality surge of the 1980s had left both sky-high…
Our measure of poverty is a relative one - that is, it’s a measure of inequality, not poverty. Formally, living in a household with less than 60% of median household income when adjusted for household size (and can be measured before or after housing costs).
There are two results of this, one from Torsten:
….while, in contrast, child deprivation has stayed stubbornly high: 30% in Britain today are growing up in poverty.
Note how the description changes. From relative poverty to deprivation - these are not, in the slightest, the same things. The other from Gordon Brown:
Chatting to her as the boxes are piled into the back seats is former prime minister Gordon Brown, one of the multibank’s driving forces, who has emerged as a leading campaigner against a child poverty crisis he fears is not receiving the attention it deserves.
Child poverty crisis might be overdoing it. For some portion of this is simply an artefact of how we’re measuring poverty - that relative measure.
We do not insist that this is all of it but we absolutely do insist that this is some part of it. Which is that if we use median household income as our measure then we’re missing an important part of the lifecycle.
It’s simply a truth that income tends to rise with age - experience at work, skills and so on. Things like teaching and nursing incomes, for example, are deliberately designed (with pay bands based upon experience) to rise with age and experience.
Having children tends to come earlier in life than peak earning years. Therefore the median income of those having children is going to be lower than the median income of the working population. This is simply inevitable when we measure poverty relative to median population income but those having children are going to be younger than the general population. Therefore incomes among the childrearing population are going to be lower, on average, than among the general.
Sure, of course, we can all decide we want to do something about this. Or not, as the case may be. But we do still insist that at least some of this idea of child poverty is simply because the population raising children is going to be younger than the general in a society where incomes tend to rise with age. At which point how badly do we want to do anything about this?
Well, they’ve fooled George Monbiot so job done, eh?
George Monbiot gives us an example of that neoliberalism that so disfigures our society. The massive profits being made by private companies in the children’s homes business. The problem here is as we’ve been saying for some years now. The numbers used are entirely deliberate distortions meant to lead people to this conclusion.
We should point out that this is not - not, repeat - about whether children’s homes should be supplied by profit-seeking corporations or not. Not from our point of view at least. On this, as so many other subjects, we’re wholly pragmatic. Whatever system works best is the one that should be used. If that’s capitalism, profits and shareholders then let’s use that. If it’s direct government supply then let’s use that.
So this is what I have learned. That nothing is now sacred. Nothing is too valued, too important, too vulnerable to not be hacked and stacked and used as fuel on capitalism’s bonfire. Inured as we are to the scorching of all we hold dear, turning children into commodities from which commercial ventures can extract profit stretches the boundaries of belief. Can it be true? Is this really how the system operates? Yes and yes.
Children in residential care, on average, generate £910 each of profit a week for the corporations that control them. Large commercial providers of children’s residential care make average profits of 19%, according to a report commissioned by the Local Government Association – an astonishing rate of return. Ordinary businesses do well to make 5%.
Who are these lucky companies? An Observer investigation found many of them are private equity, venture capital and sovereign wealth funds. Among the owners are the state of Qatar and the emirate of Abu Dhabi, whose care company in the UK, mostly investing in special schools, made 26.5% profits in 2022.
Running back through those three examples used, The Observer report we discussed here. They measure Ebitda, not profit. The average profits of 19% - that’s Ebitda, not profit. The £910 per week profit, that’s operating profit (closely akin to Ebitda) not profit.
To explain this as clearly as we can for those who might be a little baffled by accounting. Imagine that there’s an activity which requires both spending today and this week and also spending covering some years. We might call these current costs and capital costs. Or operating costs for the first set. Or even “now costs” and “then costs”. Say, given that our example here is children’s homes, we’ve the costs of the staff, the electricity, the food, these sorts of things. The bills come in every week - maybe every month - and have to be paid on that basis. We could call these current costs, or operating costs. We also have those longer term costs. Say, the cost of having a building in which a home can be. This could be interest on the mortgage taken out to buy it. There would be amortisation (ie, the capital of the mortgage being paid off). Depreciation - buildings do need maintenance, new roof every 25 years, repoint the brickwork every 50 and so on.
It’s a useful accounting technique to differentiate between these two sets of costs. So, we take those current, operating, costs off revenue and we’ve got something called “operating profits”. Closely aligned with this although not exactly the same we’ve Ebitda. Earnings before interest, taxation, depreciation and amortisation.
With our example of children’s homes we’ve therefore those two sets of costs - running the home and having the home. We’ve also those two possible measures of what’s left over after the costs of running the home but before the costs of having the home - either operating profits or Ebitda.
Those costs of having the home are substantial. As the CMA report George refers to points out, the average new children’s home has three kids in it. Given that at least some of the staff will sleep in even if not live in this means a substantial suburban house - possibly what might be termed a villa. A couple of million £ in London at least and certainly not entry-level first time buyer sort of place anywhere in the country.
The actual profit made by the capitalist b’stards is, obviously enough, the one after all those capital costs are also paid. Which is nothing at all like that £910 a week, that 19% nor the 26.5%. This is how all these reports manage to marvel at the profit margins and also worry that everyone’s about to go bust - the margins are measured before the cost of the homes, the worries about finances after them.
But we’ve had that series of reports over the years claiming these vast profit margins. As we’ve said before we think this is purely performative. A deliberate attempt to mislead and thereby influence the public debate. That several years’ worth of such reports have been funded by the Local Government Association leads us to believe that it’s a bureaucracy annoyed at someone else gaining their rightful budget.
But here we go, George Monbiot is now thundering on about it in a Guardian column so job done, right? The public is mislead, mal-informed, by that deliberate elision between operating profit and net profit, not including the costs of a home to have children in when estimating the profits of children’s homes.
Of course, it’s entirely possible for anyone who wants to to say that these details of accountancy are too complex to be bothered about. Phwoar, look at those margins! and decry events on that basis. Sure, it’s possible - but anyone who does that really has no place at all in critiquing costs and margins now, do they? Or even in commenting upon matters economic.
And now an actual and proper economic point from the Competition and Markets Authority report, the first of the three George mentions:
Comparing types of provision, we found that for children’s homes, local authorities’ operating costs were in aggregate approximately the same per child as the fees paid to large providers. However, the fees local authorities pay are higher than the operating costs from the private children’s homes providers in our dataset, as they also cover capital costs and profit. Based on our sample of 29 local authorities from across England, Scotland and Wales, we found local authority operating costs have been approximately 30% higher, on average between 2016 and 2020, than the equivalent for the 15 large private providers whose accounts we have examined. It therefore appears that the amount paid for a place in the private sector, even allowing for profits, is not higher than that paid by a local authority to provide an in-house place. Our analysis of our dataset indicated that the primary driver of these cost differentials was in higher staffing ratios and costs in local authority provision.
It is not entirely obvious that the capitalists are in fact making out like bandits now, is it?
We’ll let you know if George responds to this. Might not as he’s a book about the evils of neoliberalism to sell currently and it wouldn't surprise us if this is one of his examples. Could be a tad embarrassing as the book’s not just gone to press it’s on release.