Let's name the Lib Dem approach to recovery

As I may have mentioned before, Liberals the world over have one blind spot - one prevailing weakness which can blunt their effectiveness and their wisdom if they leave it unattended.  If socialists are not terribly interested in the abuses of power, Liberals are not terribly interested in the abuses of money.  They don't think about economics very much.

That leads them into the greatest of all political errors which the English trip over in every generation: they don't think about it very much but, when they do, they assume that the way money works and flows and accumulates is by some kind of eternal law, set down by God at the creation of the world.

No nation on earth is so conservative about the way money works as the English.  They still believe Captain Mainwaring is at his desk, dispensing sherry, and weighing up the pros and cons of specific loans, when he has long since been pensioned off by software at regional office.  They think that money is created by the Bank of England in the form of notes and coins, when actually 97 per cent is created by banks and it surges through the wires in the form of speculation at the rate of $4 trillion a day.

Last week, I used the phrase 'an ecstacy of positioning' about Lib Dem economic policy over the past fifteen years.  It keeps being quoted back at me and, I must admit, I'm quite pleased with it.  The basic problem is that they haven't believed that economics was important enough to shape a distinctive approach to it.

I don't believe the modern Lib Dems can ever thrive unless they do, unless they wield a slogan like Lloyd George's 'We Can Conquer Unemployment'.

So I was very glad to see Nick Clegg's letter to party members, announcing his intention to do just that.  But there remains a problem: it is still just a list of measures, which any sensible government might do, and no To-Do list is itself a memorable and distinctive approach, which people might hear, think about and whisper to themselves: 'We ought to give it a try - it might work'.

Luckily, I am in a blogging mood this morning, so I can supply what is missing.  Three things, and they can all be done by the party immediately:

1.  Name it. There were announcements in Nick Clegg's statement about a new way of extending local borrowing to build council houses and extending apprenticeships, but all the rest is about the same thing: creating the institutions capable of lending to a new entrepreneurial sector - the very institutions which Britain currently lacks so badly.  That is the core of the approach: it means naming it, and making it distinctively Lib Dem.

2.  Commit to letting the new Business Bank operate on lower profit margins, as similar institutions are allowed to in other countries.  There is no point in creating another bank exactly like the other dysfunctional institutions, and that means they have to be explicitly committed to lending at below market rates to get the UK economy moving again - setting up sustainable, independent businesses which can't quite leap through the hoops that the big commercial banks set.  The Treasury won't like it - but the Lib Dems should have two more years in government and these decisions will make a huge difference, if they are absolutely committed to making it happen.

3.  Regionalise the management structure of RBS.  The government has ruled out splitting up RBS into mini-banks, but then that wasn't exactly what was being proposed.  What is needed is not a set of tiny local banks, but a network of self-governing parts of RBS county by county - like the networks of local business banks in Germany and Switzerland, with local business people on county or regional boards.  RBS will still exist, but its governance will be regional, and it will keep its national network to send the capital and liquidity where it is needed.  It can then provide an answer to the big question about the Business Bank: where is its network and lending staff?  How will it get its intelligence?  Because if it is just relying on the branch network of the commercial banks, then it will be about as effective as Funding For Lending (that is to say, not very much).

As always I'm indebted to my increasingly influential colleague Tony Greenham for the guidance on regionalising RBS, and he is absolutely right.

So there we are, let's not confuse people with long lists of diverse intentions.  Let's call the Lib Dem approach to recovery what it is - a commitment to reviving local economies by providing the effective lending institutions which the UK so badly needs.

The real story of the discovery of the shape of the globe

What was it about the 1490s that meant that, simultaneously, Europe got to grips with the shape of the globe?

That one generation - from the Bristol expeditions to the American coast from 1480 to the circumnavigation of the globe by Magellan's crew in 1522 - took the world maps from a handful of vague blobs with Jerusalem in the centre to an understanding of the whole globe.

What is extraordinary is that those people who made the breakthroughs, notably Columbus, Cabot and Vespucci, all knew each other.  Once you abandon the rival nationalist myths about 'discovery', and weave the story together as it originally was - including Perkin Warbeck and the Borgias - it is as much about the European renaissance as anything else.  That and the development of Intellectual Property.

That is certainly what emerged in my book Toward the Setting Sun (now an ebook at £2.99) and that is what I said yesterday in the Huffington Post.

It makes it possible to imagine a bit more clearly just what humanity could achieve in ten years if they really set their mind to it.

The end of privatisation is coming

It is getting on for a decade or so before I first heard the fatal phrase, uttered in this case by a voluntary sector worker at the door of a community meeting:

"If you get any couples, mark them both down as women.  We haven't got enough of those."

In that simple sentence, you discover just what a trap the whole edifice of targets, standards and audited processes was that New Labour erected at such expense around the public and voluntary sectors.  The point is that target systems encourage frontline staff to finesse the way things are counted, to their own benefit.  When that involves money, it begins to look like fraud.

It is known as Goodhart's Law: any numbers that are used to control people are bound to be inaccurate.

Unfortunately for the coalition, the same is true of Payment By Results.  The whole system encourages gaming, and worse than that it encourages organisations getting public money to interpret figures to maximise their income.

I don't know, of course, what has been going on with Serco and G4S.  It may involve no fraud, just the unconscious failure to look too closely at the way numbers are transformed into invoices.  I expect this will be the ultimate revelation from any of the current inquiries that the Justice Department announced yesterday, but the question of how unconscious it was is precisely why the word 'fraud' has emerged.

The targets/results system encourages mild reinterpretation.  Once again, when money is involved, it becomes expensive.

Encouraged by the management consultants, outsourced or privatised services pay increasing attention to the business of counting so as to maximise income.  Hospitals are employing highly experienced accountants, at £1,000 a day, to re-code the work they do, so they can bill a bit higher.  There is also studious inattention to anything that might question the seamless process of numbers turning into invoices.  In this border between the accounting  departments of the oursourcing giants and those of the Whitehall departments, the costs are mounting.

In fact, it is just too expensive.  The influential NHS blogger Roy Lilley estimates today that CCGs may be spending about £95m a year dealing with disputed service contracts.

That is why, despite the parallel announcement about the privatisation of the Royal Mail, I'm pretty sure that this marks the beginning of the end of privatisation as we know it.  For that reason and these:

1.  The money isn't there any more.  The depth of the crisis in public service funding is now so intense, and the available funding has been sliced so thin, that the scope for making a profit on most outsourcing - and certainly most privatised utilities - is no longer there.  The demand is not going to be there from businesses, especially if they are going to come under the kind of forensic scrutiny that now awaits Serco and G4S (and we haven't even begun examining the Payment-By-Results contracts yet).

2.  The economies-of-scale doesn't work any more.  The only circumstances in the near future when there might be some opportunity for profit is if the deliverable outputs are so narrow, and the means so virtual, that some kind of economies of scale are possible.  That is precisely why the public is increasingly sceptical - and so are the professionals, because it is increasingly clear that these economies of scale are purchased at the cost of diseconomies of scale in  other parts of the system, which have to be paid for in increased demand by someone else.

3.  The issue is no longer public versus private, it is flexible versus inflexible.  The worst service, the most inflexible and inhuman systems are now to be found - not in the public sector - but in the privatised utilities: all the sins of the nationalised industries have simply been continued by their private owners, as I explained in my book The Human Element.  The issue isn't ownership, it is scale and flexibility - so as to avoid the mounting diseconomies of scale, when you have to do the work over and over again because it is so ineffective (why is quality cheaper, said W. Edwards Deming rhetorically? The answer: No rework).

So there we are.  RIP Privatisation (1984-2013).  It is on the way out, not for ideological reasons, but simply because it no longer suits the immediate needs of policy-making.  The Serco/G4S scandal is just the beginning: by the end of this process, there will still be outsourcing - micro-enterprises will meet a whole range of needs - but I don't see how the giants of outsourcing can survive.

Time to unbalance the economy

It is a relief sometimes to find the government has done something that is, not just unexpected, but overwhelmingly and unexpectedly right.

There I was staggered that Vince Cable is prepared to countenance plans to privatise the Royal Mail, a step which not even its most enthusiastic proponents would claim will improve the service - and will therefore introduce a whole range of externalities and costs for other people - with not a shred of mutualism to be seen.

And suddenly, the government wins a high court action against the big fishing companies, which had tried to prevent them re-allocating fishing quotas to small fishing boats.

This is such an imaginative move that I have been wondering if it could be extended to cover other parts of the economy.

It is true that progress 're-balancing the economy' has been extremely small.  It is difficult to shift economic power from the banks and finance companies, because the rewards to the Treasury of letting them carry on hollowing out real economy are so high.  So we still, after three years of the coalition, have an economy miserably dependent on a non-existent local lending infrastructure, and we still have 70 per cent of bank lending desperately attempting to create a new property bubble.

So why don't we give up the effort of re-balancing and set out a new policy of unbalancing the economy - a deliberate effort to shift power from the big to the small.

The rewards are difficult to estimate but they should be huge: small companies employ more people, expand faster, pay more tax relative to their size, provide challenging innovations and support their local neighbourhood in a way that the big corporate giants fail to.

Is there really any doubt that having a Big Ten supermarkets rather than a Big Four would improve service, employment and competition.  Having a Big Thirty banks rather than the handful of useless behemoths that we do have would expand the local economy far more effectively, rather than corroding it.

Shifting subsidies for farmers from the big to the small would improve yields, diversity and competition and help the balance of payments.  It would also improve employment.

Because only radical action like that would be able to shift the astonishing privileges the big companies have at the expense of the smaller.  Tesco is able to demand that suppliers wait three months for payment, providing them with an interest-free loan equal to two months of stock, when competitors have to pay in one month. Thames Water took in more in government subsidies than it paid out in tax.

What's the downside?  We could potentially lose some economies of scale, but since most economies of scale are matched by diseconomies of scale which very rapidly overtake them, that may be no great loss.

It would require guts and, more than guts, lawyers - and it would need to be justified by a manifesto promise.    But if anyone lets me back on the policy committee of the Lib Dems - which is far from certain - that is what I'll be trying to insert into their manifesto: something that is, at long last, pro-business and overwhemingly pro-enterprise and innovation.

Why Richard Grayson got it wrong

I've just read through Richard Grayson's apologia for leaving the Lib Dems on the Compass website, and feel sad about it.  It hardly needs saying that I don't think he is right, but I've known Richard and enjoyed sharing a committee table with him for so long now that I can't remember when I first met him - but I think it was 1997.

I remember having a cup of tea with him for the first time when he was running the Centre for Reform, as it was then, in the wonderful Tevere cafe, since unfortunately gone the way of all cafes.  Richard was always a thinker and the party needs thinkers, and we should not be losing people like him - but there may be reasons why we inevitably will.

I've enjoyed his company during the years of Richard Grayson Mk I (It's all about Freedom) and the years of Richard Grayson Mk II (It's all about equality).

He made some points in his Compass article that made me think, but I've always known that he was a different kind of Liberal to me.  I remember running into him at the Friends Meeting House in Euston during one of the debates between Clegg and Huhne during the leadership campaign.  I was a convinced Clegg supporter, not through any disagreement with Huhne, but because he seemed to me to be searching for a new political language - which I felt we desperately needed.  I asked Richard then what he thought of Clegg and was taken aback by how much we had drifted apart politically.

I don't recognise the party disputes that he writes about from his descriptions of them, but these are just playing with words.  If I had him in front of me, I would say three things...

1  Slow progress in government, yes, but...
I recognise with what he says about the tiny progress the party has made in terms of policy implementation in government.  It has been far, far tougher than anyone might reasonably have imagined - there may be questions about whether the coalition was, in fact, the right thing to do for the party, though it clearly was for the nation (and some important things have been achieved, like taking the low-paid out of tax).

My small involvement in government since 2010 has convinced me that we are also not alone in that.  The frustration of the Conservatives is, if anything, more intense - not because they have been frustrated by the Lib Dems (though they are sometimes), but because of the sheer complexity of the system they are dealing with.  Government is intractable and almost nothing seems to be possible.

That is fascinating for me as a policy wonk, but it isn't a reason to leave the party.

2  The terrible failure of New Labour on public services.
I have felt much less sympathy for Richard's point of view because of the failure of some on his wing of the party to recognise the basic problem.

They are so wedded to the system as it was, that they never grasped the scale of the damage done by New Labour in their centralisation, control and emasculation of public services.  At huge expense, and with the aid of a battery of targets and standards and an enthusiasm for process, they rendered public services dangerously ineffective, as I described in my book The Human Element.

To say this does not make me an old-fashioned Conservative who wants to demolish services, but I do at least recognise that there is a problem in the status quo.  Austerity isn't the solution, and it isn't clear to me that the coalition has grasped the problem either to any great extent.  But I don't share the view - which Richard seems to imply - that the problem is all about defending the old settlement, and funding it adequately, because if we did that - all wouldn't be well at all.

3  The terrible failure of Lib Dem policy-making
Richard hints at this in his article, when he describes the failure of Lib Dem economic policy to provide any conviction once the party was in government.

The real problem was that, once in government, the Lib Dems found they had no distinctive economic policy and nothing much to say on public services, and without either of those they were bound to be blown around by events and by convictions stronger than their own.

That is the reason for the failure to construct a Lib Dem alternative to austerity.  It is the reason for the muddles and confusion about the various different versions of health legislation.  It all had to be made up in the heat of battle and of course it had no depth.

I was on the federal policy committee of the party during the run-up to 2010 and I must take my share of the blame for that failure, but so must Richard.

Policies with depth don't just emerge around a committee table.  They need to be based on a flurry of thinking, ideas and debate around a party leadership, and this never happened during the Kennedy leadership years.

There lies the heart of the difficulty: in practice, the Lib Dem economic policy has been an ecstasy of positioning and compromise, not because Liberals have no convictions - but because they are not terribly interested in economics.

So what really separates me from Richard here is not so much my Liberalism, but his conservatism.

He didn't want to find a new political language.  I don't want to defend the design of the 1945 welfare state.  I want an effective system that genuinely supports people to escape Beveridge's Giants, which I don't think the Spirit of '45 provided, for reasons I've discussed elsewhere.

I don't believe these issues can somehow be assumed.  They need to be debated from a radical Liberal point of view so that effective public services can survive the assault, not because we need to defend the past, but because they work for people.

But that debate never happened.  Again, I have to take my share of the blame but, then again, so does Richard.

How to shift economic power, without help from governments

One of the best of the Ealing Comedies, The Titfield Thunderbolt¸ has rather a wonderful scene at the  public inquiry where the trade union leader is flummoxed by the disparate group of volunteers who want to take over their local railway line to save it from closure.

They are non-union labour who are about to be exploited by the bosses, he says.

“But we are the bosses,” says the vicar/train-driver.

These were the days before amateurs taking over railways, at Tallylyn and then the Bluebell Line and many others. Mutualism has always been pretty incomprehensible to state socialists, and has been ever since Beatrice Webb torpedoed British mutualism on behalf of the Fabian Society.

The fate of the Co-op Bank was a bit of a blip for the politics of mutuals, but things do seem to be moving again – almost, but not quite, fast enough to make this issue absolutely centre stage for the future of the UK.

The evidence suggests now that, not only are mutuals generally speaking more successful than companies that have very hierarchical structures, but they give employees an economic stake which the rest of the economy increasingly denies them.

They are, in effect, a key part of the jigsaw that might bring about an economy that spreads the rewards equally enough to succeed – it is pretty clear now that economies which fail to do this tend to grind to a halt, because nobody but bankers can afford to operate in them.

In fact, mutual ownership of land as well as employee ownership of businesses seems to be one of the few potential solutions to the terrible mess our economic policy has landed us in, for all but the very rich.

But what is fascinating about this is that you could imagine change happening without government support, and with most governments hopelessly wedded to the old model, this might have to be the way forward.

So I was fascinated to read an op-ed article in the New York Times by the great campaigner Gar Alperovitz about how this might happen, appealing to baby-boomers who own businesses to sell them to their own employees.

If they do, it would create another 2-4m employee-owners over the next generation as the baby-boomers retire

The most interesting development in the USA is the way the steel union has now adopted mutualism, and in fact now has a partnership running with the Mondragon network of co-ops in the Basque area of Spain, which provides one model of how networks of co-ops can provide everyone with a proper economic stake.

Gar Alperovitz is something of the phenomenon, combining experience working in Congress with campaigning and academia. He is also part of the Democracy Collaborative which was behind the inspirational new co-ops built around public services in Cleveland, Ohio.

He is also a compelling speaker. I have watched him hold an audience in the palm of his hand, on a snowy Saturday evening in the town hall of Great Barrington, Massachusetts, speaking for over an hour without notes.

His basic message is that we are entering the most important period of peaceful revolution and economic reform since the American Revolution itself. I think he may be right.

The last few years of literary festivals?

Thank you to all those who made it to my session this afternoon at Ways With Words in Dartington Hall, which was magical in a whole range of ways.  The dreamy sunshine on the lawn, the otherworldly atmosphere of Dartington – heavens, I even slept in a medieval bed.  It was almost News from Nowhere in reverse.

My session on the middle classes was great fun and lively and I’m ever so grateful to everyone for coming.  I will be doing a rather different version of the middle class performance at the Edinburgh Book Festival in August.

But it was poignant as well.  I realised, sitting in the sun, that the vast majority of people who had come to the festival to listen to me, Ann Widdecombe and Roy Hattersley (a strange combination), were retired people on full final salary pensions. 

The perfect storm that is about to sweep away the middle class lifestyle for the next generation will also sweep away these final salary pensions – in fact, they have already been swept away.

The average pension pot in the UK is now £25,000, enough to pay out about £1,250 a year.  If the whole literary and cultural economy depends on pensioners having disposal income – and I believe much of it does – then it will not exist.

Those of us born between 1920 and 1950 have created that leisured, cultured world, because of generous pensions, paid for by employers, that no longer exist.  It is more than sad to see it go: it will be a disaster for the UK, dependent than much more on the largesse of Chinese and Qatari investors and the books and culture that they happen to like, and are written for them as an audience.

But then, we shouldn’t write off the middle classes quite so soon.  They have an amazing ability to adapt and survive – and it is precisely how they are going to do that which my book Broke sets out.

There is a way out.  Now we have to actually take it.