Cop out

28. October 2022 · Write a comment · Categories: Cartoons, Climate Change, Economics
The Congress of Berlin: Disraeli as a tooth-drawer, assisted by Queen Victoria, operates on Sultan Abdul Hamid II of the Ottoman Empire, surrounded by political figures from France, Germany etc. Coloured lithograph by J.J. van Brederode after Jan Steen, 1878. (Steen, Jan, 1626-1679 Reference: 778482i)

If you think COP27 is just a virtue-signalling tree-hugging “gathering of people in Egypt” then Rishi Sunak’s decision not to attend it will make a lot of sense as he tries to grapple with his domestic economic agenda ahead of the autumn statement next month. The Treasury has said that the aim of the statement will be to “to put public spending on a sustainable footing, get debt falling and restore stability.” If you remember, the cause of the “instability” was the foreign exchange and gilt markets, and the lack of confidence in the UK’s economic management internationally. One of the causes of the problems with the UK’s economic management was a failure to think internationally.

COP27 is, in reality, an important international economic conference. This conference is going to be focused on, amongst other things, food security, water security and investing in the future of energy. The support with energy bills is, of course, a major element in the debt levels Sunak is worrying about and, as the cost of living crisis worsens (exacerbated by the Monetary Policy Committee’s expected further increase in interest rates on 3 November), food security is going to rapidly move up his agenda in the coming months. The only difference between the most important concerns of the autumn statement and COP27 are therefore timeframes. COP27 is about medium to long-term thinking. Sunak has indicated, by not attending, that he is only concerned with short-term thinking.

Then there is the agenda around providing a just transition to a net-zero world (ie not skewed in favour of the already wealthy countries) and the sustainability of communities made vulnerable by climate change. This is where the conference starts to resemble other famous international conferences of the past which made the reputations of British statesmen. The illustration above is from the Congress of Berlin in 1878, when the then Tory Prime Minister, Benjamin Disraeli, “acquired” Cyprus in a great powers carve up of the globe. In 1944, towards the end of the second world war, John Maynard Keynes famously sparred with Harry Dexter White from the US Treasury at Bretton Woods as the post-war economic consensus was thrashed out at an international economic conference. They matter.

Of course we don’t carve up the globe any more, you may think, but yes we do. As George Monbiot has pointed out in his excellent Regenesis, the ghost acres (ie the the area, outside their own land, that farms need to operate) of UK agriculture can be as much as 2-3 times as many as the acres we farm domestically. A WWF report from 2020 suggested that the UK’s overseas land footprint has increased by 15% on average compared to their 2011-15 analysis. Between 2016 and 2018, an area equivalent to 88% of the total UK land area was required to supply the UK’s demand for just seven agricultural and forest commodities – beef and leather, cocoa, palm oil, pulp and paper, rubber, soy, and timber. Every time we insist on domestic economic growth as a non-negotiable element of our economic policy, we are effectively exercising a land grab in the global south to achieve it. If Sunak was interested in establishing himself as an international statesman, he would be at COP27.

And finally, of course, there is the terrible human rights record of the Egyptian state, which needs to be called out and challenged to avoid COP27 being just a public relations victory for the military regime led by General Abdel Fatah al-Sisi.

But Sunak has turned his back on all of that, so that he can spend a bit more time with the spreadsheets and economic forecasts in his bunker in Downing Street. It suggests a small-minded, short-term thinker, lacking in vision and ambition. Copping out should not be an option for any Prime Minister, even during a crisis.

1976 and all that

25. October 2022 · Write a comment · Categories: Economics

Three months ago, there was a lot of talk about 1976. My favourite tweet from the July heatwave was this one:

By contrast, 1976 seems to have disappeared from my Twitter feed altogether now, which is a shame because it was a time when a very different type of UK Government was trying to deal with some very familiar issues.

For instance:

  • Worries about the exchange rate. This is what effectively precipitated the International Monetary Fund (IMF) crisis, with the pound having fallen from the $1.77 level which the Bank of England had been defending with interest rates and reserve purchases ($400 million in September alone) between July and September 1976 to $1.63, with predictions of $1.50 being possible (although $1.63 turned out to be the low point).
  • Worries about the current account deficit, ie the fall of exports relative to imports. Import deposits, where importers needed to put up cash in advance, were being proposed as a possible measure, finally averted as part of the IMF deal.
  • Worries about deficits – cutting the Public Sector Borrowing Requirement or PSBR (what is now called the Public Sector Net Cash Requirement or, more commonly, just the budget deficit) by £1 billion pa was the UK Government’s negotiating position, although less than the IMF wanted.
  • Worries about fuel poverty – cabinet papers from Barbara Castle as the Secretary of State for Social Services in 1975 and 1976 focus on this a lot, with detailed discussion papers about the options for helping different sections of the population. This was also when the first winter fuel allowance was proposed.
  • Cost of living crisis – there were also cabinet papers concerning how to operate price restraint schemes in the wake of a white paper from 1975 called The Attack on Inflation, which involved agreements industry by industry on price increase limits with the CBI, the Retail Consortium and the unions, including specific limits for each of the nationalised industries.

According to Goodbye Great Britain, by Kathleen Burk and Alex Cairncross, published in 1992 about the 1976 IMF crisis, the IMF were partly being used by the US Treasury and other bodies connected with the US administration to force a change in UK economic policy in a way that they would not be able to do directly. There were concerns in the US that the UK would turn its back on the IMF, introduce foreign exchange controls, freeze convertibility, perhaps even default on its loans. Indeed Brent Scowcroft, the US President’s National Security Advisor at the time, said that:

I spent more time on this matter during those weeks than anything else. It was considered by us to be the greatest single threat to the Western world.

That was not the only reason for the IMF to negotiate hard. The 1968 Basle Arrangement on funding sterling balances following the sterling devaluation in 1967 was felt by many countries to have been unduly preferential to the UK compared to how other countries had been treated. The IMF itself was therefore also under scrutiny.

So this was the background to a crisis which seems to have been less about the money (the endorsement of the IMF for its economic policies was more important to the UK for calming the currency markets than the loan according to some accounts, whereas the Under-Secretary for Monetary Affairs at the US Treasury, Edwin Yeo, said that they had “put up the money [for the IMF loan] ‘for the bait’ – ie to hook the UK economy into IMF control when it had to be repaid.”) than about who ran the economy. Andrew Graham, a member of the Prime Minister’s (then Harold Wilson) Policy Unit in 1974 and 1975, remembered the fear of union strength amongst some during that period, with Labour people in Whitehall and Westminster asking each other which side of the barricades they would join – the miners’ or the army’s.

Certainly a year after the agreement the economic crisis seemed to be over. The pound was rising again (it eventually reached $2.40 by October 1980) and reserves increased rapidly. Denis Healey, the Chancellor of the Exchequer at the time, claimed that, if the forecasts he had received had been more accurate, the UK would never have had to go to the IMF, although I do wonder whether another reason would have been found given the concerns of the US Treasury in particular.

However the solution to the economic crisis created a political crisis. In March 1977, the loss of support amongst Labour backbenchers following the Public Expenditure White Paper of 1976 led to an agreement with the Liberal Party (the Lib-Lab Pact) to keep the Government in power and, according to Burk and Cairncross, “one incomes policy too many” led to the Winter of Discontent in the winter of 1978-9, when more than 2,000 workers went on strike in the Liverpool and Merseyside area – rubbish was left uncollected, hospital services were reduced, and bodies went unburied. This was what led to Margaret Thatcher’s election in 1979 and Conservative Government’s and Oppositions and their supporters have continued to refer to this ever since as the consequences of Labour economic policy, rather than the IMF crisis itself.

Yet it was the IMF crisis which seems to have been more formative for Labour. Jim Callaghan made a speech in September 1976, in the middle of the crisis, in which he said the following:

For too long, perhaps ever since the war, we postponed facing up to fundamental changes in our society and in our economy. That is what I mean when I say we have been living on borrowed time…We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that insofar as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.

This statement seems to me to underpin every similar Labour Party statement since, from Liam Byrne’s “I’m afraid there is no money” to Keir Starmer’s recent promise that “there will be no magic money tree economics with us”. It is as if the Labour Party has never stopped trying to prove its credentials to some imaginary IMF mission ever since. The ghosts of 1976 remain with us.

Democratising the Lathe

21. October 2022 · Write a comment · Categories: Cartoons, Economics, Regulation, Science Fiction

I have been thinking a lot about Ursula K Le Guin’s The Lathe of Heaven over the last few weeks, a book I would highly recommend at any time but particularly at the moment. It is the story of a man, George Orr, who can change reality by dreaming. An ability that terrifies him. He is caught taking unprescribed drugs to try and prevent himself dreaming and as a result is sent for a “voluntary therapeutic treatment” with Dr William Haber, a dream specialist. Haber has built a machine called the Augmentor to make it easier for his patients to have dreams directed by him. He starts to work with Orr, becoming increasingly impatient with Orr’s version of the directions Haber is giving to his dreaming in the machine, until eventually Haber dispenses with Orr and connects himself to the machine instead.

Every time reality is changed it is as if it has always been changed. The changes become increasingly dramatic and disruptive until a peak of general insanity now referred to by all as The Break:

All over the world the various gods were being requested, more or less politely, for an explanation of what had occurred between 6.25 and 7.08 pm Pacific Standard Time.

But what the book really focuses on are George’s desperate attempts to live in this increasingly unhinged reality, as the only person (apart from Haber) aware of the abrupt changes swinging it around, and to hang onto the one person, Heather Lelache (or Andrews in the final version of reality they arrive at), he has ever loved.

One of the sentences on the last page (when he finds out that she has married) has stayed with me in particular:

He stood and endured reality.

However hilarious some of the moments of the last few days have been (and let us not forget some of the highlights here, here and here), we are all going to have to endure some significantly altered reality over the coming years as a result, from the moron risk premium to the cost of living crisis slowly rippling through all aspects of life, at a time when we already have a climate emergency and other planet-wide issues we need to be dealing with. There are many arguments to be had about the best way to tackle all of these problems, and I intend to throw myself fully into those arguments.

However, I would propose that we have to prioritise ensuring that, as a society, we never ever again let the lone mad scientist or economist or politician or former talk show host or indeed anyone else, whoever or however charismatic they are, take over sole control of the machine.

I think we need to do three things to achieve this, before we start to argue over policy:

Adopt proportional representation in parliamentary elections. We have got to broaden the support for whoever is in power, rather than stick with the current system which focuses on a tiny number of people in marginal constituencies and ignores pretty much everyone else. Make Votes Matter have agreed a cross-party document (which I have signed) called the Good Systems Agreement. This sets out the options on voting systems to replace first past the post and the best way of getting there. More about what is wrong with our current system (from the Electoral Reform Society) can be found here. Never again should there be a small cabal of people (like this weekend) deciding on who runs the country – with a steadily shrinking selectorate as their ability to achieve consensus on anything dwindles with every successive decision. We no longer have a system in the UK that can make important decisions and the answer is not more technocracy (leaving it to the so-called clever people, however foolish they may be) or plutocracy (leaving it to the rich), it is more democracy, ie including all of us in the decisions we will have to live with.

Reform media ownership and promote plurality in support of a more democratic and accountable media system. The Media Reform Coalition has produced a manifesto for a people’s media which I support: it includes proposals for an Independent Media Commons – with participatory newsrooms, community radio stations, digital innovators and cultural producers, supported by democratically-controlled public resources to tell the stories of all the UK’s communities. This will allow a much greater range of ideas to be presented to the public and discussed than the current Overton window (see below) and greatly improve our national debate about the things that matter.

Source: 99% Organisation

Reform election finance. Recommendations for doing this were provided in the July 2021 report by the Committee on Standards in Public Life, with 47 recommendations following a comparison of political and electoral finance regulation in 12 countries (Australia, Canada, Denmark, Finland, France, Germany, Ireland, the Netherlands, New Zealand, Norway, Sweden, and the USA), the majority of which are around reforms to campaign practices, meeting emerging threats around the source of donations, delivering greater transparency and enhancing compliance with election finance law.

We have big problems to solve in the UK and we need everyone to be able to contribute if we are going to solve them. However currently:

  • Our votes are counted in a way which effectively wastes most of them;
  • The information we receive about politics is fed to us through a very partial sieve controlled by a small unrepresentative group of people whose vested interests effectively define our Overton Window; and
  • Influence and access to power often appear to go to the highest bidder rather than the best ideas.

All of this needs to change whoever is Prime Minister in the coming weeks, months and years.