Ever more dependent on the property bubble

I met up with a banker friend and relative of mine last Friday.  I take him seriously because, back in 2007, he was suggesting that he and I write a book together on the coming collapse of the global banking system.  I didn't - but it did.

This is what he said last week.  If you put bankers in a room trading bonds, and pay them bonuses to encourage them, they will carry on doing it until everything explodes.

This is horribly true.  It is one of the side-effects of bonuses of all kinds, and targets too.  They encourage people to leave their brains and consciences elsewhere.

The tragedy is that, five years on - and despite all the debate, heart-searching and tentative reforms - I am far from sure that the system is any more secure than it was before.

It is more secure against precisely the failures we had then.  Nobody is going to explode the world with subprime mortgage bonds.  But, as we know, history rarely repeats itself precisely.

This is important now and especially for the coalition.  On the face of it, the economy is racing ahead, the jobless totals are falling like a stone, Ed Balls is falling into line on the deficit.  But could the whole thing unravel again, just as before - but this time far more destructively?

We still have those trading floors full of traders lobotomised by bonuses.

We still have banks which are, terrifyingly, too big to fail.

But most of all, we still have a financial system that remains destructively geared to a continuing property bubble.

There are three elements to this, and we need to think about this in the UK particularly, because we are more enslaved to rising property values than almost anywhere else.  Here they are:

1.  Interest rates rise. Last week, unemployment dipped worryingly close to the level where the Bank of England said they would raise interest rates.  They have spun that one differently now, but sometime - probably within the next twelve months - interest rates are going to rise to a more normal level again.  That will mean a huge rise in government debt repayments, but - most important - it will be catastrophic for everyone who bought homes in the last five years in the way they seem to be encouraged to do: with interest rates right up against what they can afford.  It seems likely that property prices will then begin to slide as repossessions begin.

2.  The mortgage market.  When that happens, you have to ask what will happen to all those bonds backed by UK mortgages.  See for example the 2012 story about JP Morgan Chase, which has bet themselves on the safety of UK property prices - and, at that stage, owned 45 per cent of all the UK mortgage-backed bonds which had been put on the market in the previous two and a half years.  By 2012, their CIO outfit owned $100bn of mortgage-backed bonds of the kind that caused all the trouble last time.  They did so on the grounds that UK property was safer than US property...

3.  The money supply.  Politicians are a conservative lot in the UK, and they don't know much about where money comes from.  They rarely understand that about 60 per cent of the money in circulation was created in the form of mortgages (we hardly create any of our money the old-fashioned way any more, as non-interest bearing notes and coins).  If mortgages slow down, so does the money supply.  If the property market shifts on its axis, then the money supply suddenly dries up,

The terrible irony of this is that, despite that, we desperately need property to get less expensive - slowly.

Otherwise there is no way our children will be able to afford homes, or rent them, without selling their souls to financial services for a quarter of a century's indentured servitude.  More on that in my book Broke: How to Survive the Middle Class Crisis.

But two interim conclusions.

First, it is ridiculous that the financial system relies on these profitable peculiarities.  We badly need to modernise it, and to give it a fundamental re-think - if we don't want to repeat 2008 every generation or so, and probably more often.  The Australian government has launched a timid inquiry into the financial system, and we need to do the same - with a bit more oompf.

Second, the irony is that the wave of financial regulation in recent years has not tackled the underlying fissures (the ridiculously complicated capital requirements for banks, for example) - but has still managed to apply onerous new requirements to hamstring the small banks, which we rely on to do the basic work of deposit taking and loans.  See fascinating article by former US regulator here.

We have, in short, been going in precisely the wrong direction - undermining the most effective and useful banks but leaving the dodgy causes of the last crisis untouched.

Columbus' lessons for the Somerset Levels

Nearly seven years ago, while I was writing Toward the Setting Sun – a look at the links and rivalry between Columbus, Cabot and Vespucci – I went to Palos de la Frontera, from where Columbus set sail in 1492.

You can stand on the dockside, as he did, but the ocean is now completely out of sight.  It is smallholdings, strawberry farms and scrubby farmland as far as the eye can see.  In the far distance, on a clear day, you can just see the glimmering of the Guadalquivir estuary in the distance.

It is a measure of just how far the water has receded over the past five centuries or so, right across Europe.  Partly because of drainage, partly because of industrialisation, partly because of greater extraction.

I thought about that today when I saw the pasting the Environment Agency was getting because of the flood water in Somerset.

They may be to blame for not dredging the rivers enough, though there are clear disadvantages of doing so.  I don’t know.  I’m not a water engineer.

But what we can say is that it is possible to discern the drift of the politics of climate change, as the water levels rise and the wind and extreme weather begins to take shape.  The first people we will blame, after the transport companies – who will have taken no precautions, as usual – will be the Environment Agency.

If it is their fault at all, then they will share it with the politicians who failed to take evasive action when it was clear what direction the climate was taking, but that is kind of by the way.

The main point I want to make is about history.  We know the shape of our rivers and coasts in previous centuries, and there is no reason why – however much money the Environment Agency might throw at flood prevention – those patterns should not return.

As I say, Columbus sailed from a dock where the sea has entirely disappeared.  The Saxons used to sail ships all the way up the Thames to Oxford.  And the Somerset levels were under water until a few centuries ago – they were drained over a millennium, and it appears they are returning to their previous shape.

Joseph of Arimathea may not have arrived in Glastonbury by ship, as legend suggests, but many other people did.

Similar examples are all over the country.  The beach where William the Conqueror landed and ate the sand is now an inland car park, some miles from the sea.

We may just have to put up with the return of medieval rivers, with flood plains which are used for floods not for building houses on.  Even the crustiest sceptic about the climate change narrative agrees that the temperature is rising. 

There are times when we need to take Carl Jung’s old advice, that we must tackle the things we can change, not waste our energy on the things we can’t, and somehow generate the wisdom to know the difference.  This may be one of those times.

We will always need some kinds of choice

I've learned to distrust the fantasy that many writers have, which is that people are talking about you.  Your ears burn, your backbone shivers - it doesn't mean a thing, I can tell you.

But then suddenly I discover a fascinating online debate where the name David Boyle gets gargled with occasionally.  It doesn't happen very often, and I missed it.

So thank you to Mark Pack, who reviewed the system thinker John Seddon's key text Systems Thinking in the Public Sector on the Lib Dem Newswire blog.  Seddon has responded there with his own challenge.   The argument has continued in various places, notably around the table at the Lib Dem public services commission - and it seems to be summed up like this:

Can we so improve public services that choice is unnecessary?  Or, as Seddon puts the question himself: is there any evidence that choice improves services.

The problem about this is that the weasel word 'choice' remains undefined, and this is important because all the political traditions define it in different ways,

New Labour choice was about formal economic options between public sector providers.  It was invented by economists and depended largely on choosing between rival bits of real estate - one hospital versus another, or one school versus another.

Conservative choice is about the private sector.  If there is a private sector provider to choose, there is choice - if not, there isn't.  But the actual choice may be made by commissioners rather than users.

Lib Dem choice is about consumer rights: are there other options apart from the mainstream?  If things go wrong, can you choose differently?  It is an approach to choice which is an end in itself rather than a means to a different end - driving up standards (New Labour) or privatisation (Conservative).

What is most peculiar about this is that these different interpretations are rarely discussed, and are largely unacknowledged.  It is hardly surprising people disagree.

But back to John Seddon.  This is what he says about my Barriers to Choice Review last year:

"I have read David Boyle’s report. It was an attempt to seek ways to extend the idea of choice; the report didn’t question whether choice improved public services. The evidence for choice improving public services simply doesn’t exist."

In fact, there is some evidence that formal choice (read New Labour choice) has improved standards - both in schools and hospitals - but not a huge amount, and the evidence also suggests a negative impact on equality.  But what John doesn't say - though I'm sure he is aware of this - is that the Barriers to Choice Review tried to extend the idea of choice to cover what he is doing to make public services more flexible.

This is what I called during the Review 'broad choice'.  It implies two things:

• Whatever the mechanism, people need services to be much more flexible if they are going to get their needs met effectively and inexpensively.
• If the mechanisms of formal or narrow choice make services less flexible, then flexibility is more important.

But does that rule out choice?  I remember one round table I held during the Review.  The first speaker, a patients' advocate, told me that nobody wanted choice (though this is not what the polling data says).  The next one, a long-term patient, said this:

"I would have travelled to another country to get another choice when my consultant was unpleasant to me.  They said I could have a second opinion. I said, I don’t want a second opinion, I want another choice.”

I take that seriously.  That patient, and all those like her, may not have wanted a formal choice between hospitals, but she did want the option to shift when things went wrong - because professionals were rude or incompetent.  Or for a host of other reasons.

Even if systems thinking was improving services everywhere - and I'm sure it eventually will - people will still need some rights in what will always be an imperfect system.  To say that there will be no imperfections means putting ideology and theory above ordinary everyday reality - and that's what got us into trouble before.

So flexibility, yes.  And if public services are genuinely flexible, then we can expect those formal choices to be used less and less - but what do we do in the meantime?  Remove people's right not to be treated by people they don't trust in places they don't like?

The bottom line is this.  However successful systems thinking is going to be in transforming services, we must never remove people's rights on the grounds that the system will be perfect, because it never can be.  

Can we ever sing We Shall Overcome again?

I was in Portcullis House, in Westminster, a few weeks ago when Parliament was paying tribute to Nelson Mandela.  One of the people I was with was complaining that everyone who spoke in the debate, one after the other, managed to dredge up a claim to have met the man himself.

Well, I never met Mandela.  I never even almost met him.  But I did meet Pete Seeger, who died yesterday at the tremendous age of 94 (though the BBC didn't use his age).

I had been brought up with his singing, in a sense.  The only 45 rpm record that my parents owned when I was growing up was Seeger singing ‘Little Boxes’ (the B side had a strange song by him called ‘Stick Some Stamps on the Top of my Head; I’m a Gonna Mail Myself to You’).

I was speaking at a conference on the future of money almost a decade ago, up the Hudson River which was Seeger’s stomping ground – and there he was at Bard College, tuning up ready for his conference concert.  Not only have I met Seeger, but he heard my lecture about the Wizard of Oz...

I took the opportunity to thank him for being in the corner of my sitting room, and he told me the background to ‘Little Boxes’ – a story for another day.

Seeger was the son of one of the most famous American composers of the century, Charles Seeger, and was old enough to have formed the human link between Woody Guthrie and Bob Dylan in the story of American folk music.  He even appeared before the House UnAmerican Activities Committee.

And last but not least, it was his songs – ‘Where Have all the Flowers Gone?’ and ‘We Shall Overcome’ - that formed the background to the protest movement in the 1960s.

I’ve sung those on demonstrations with the best of them.  I have ‘We Shall Overcome’ coursing in my veins.  So I’ve been wondering why I don’t sing it, or demonstrate, any more.

Before we dismiss this as the inevitable symptom of  middle age, bear with me for a moment - because I suppose I became disenchanted with slogans.

I went on the anti-war demonstration in 2003, but then so did everyone else.  As I became disenchanted with the bizarre embrace of a chimera by the right (trickle down), I became increasingly irritated with the simple solutions – the kind you chant on demonstrations – from the left.

I stopped believing we could ever overcome quite like that.  There seemed something mildly intolerant about many of the demonstrations I used to go on.   The French philosopher Jacques Ellul used to say that you get like the people you fight – and this seems to me the fate of the conventional left.

That is not to say that compromise or pragmatism is the solution either.  Or that change isn’t urgent – it is.  Or that I won’t be singing We Shall Overcome to prevent the next nuclear power station being built, or anything else that entrenches central power.  I just don’t believe in the conventional solutions of the left any more. 

The remaining concrete tower blocks are a testament to the phony solutions people sang We Shall Overcome about.  The song has inoculated me about fake radicalism (the Labour Party springs to mind), or any solution that isn’t human.

The reason why the conventional left is in retreat is that, with the exception of We Shall Overcome, their songs are the songs of retreat.

They are defending the status quo, not proposing the solutions we so badly need – or thinking about why the status quo is so threadbare and needs defending so badly.

In short, we need different songs of change to sing, and it is a source of great sadness that Pete Seeger won’t be around to sing them.  And if we can develop the new solutions, which might have some chance of being effective, then maybe we can sing We Shall Overcome again.

Pro- or anti-business? It's the wrong question

The phrase ‘anti-business’ is being flung around again and I’ve been puzzling about what it means. I’m equally confused about what ‘pro-business’ might mean too.

Does it mean pro-Barclays? Or pro-entrepreneur? Does it mean pro-Tesco? Or pro-Tesco’s suppliers of apples in the UK?

So when Ed Balls is being accused of being anti-business because of his support for a 50p tax rate for people earning more than £150,000, I’m wondering if the phrase has any meaning at all.

There are a whole range of reasons for disagreeing with Ed Balls on most things. Nor is a 50p tax rate likely to do much for ending the great rift between the ultra-wealthy elite and the rest of us.

The richer you are, the more income tax becomes a voluntary business – it means you can afford the tax avoidance measures and the tax lawyers to bypass the grubby business of paying tax.

We may prefer this to be otherwise, but income tax tweaking has become little more than a symbolic gesture towards equality rather than a hard-nosed policy likely to achieve much.

But despite all this, the idea that people earning more than £150,000 should pay a fairer share is hardly anti-business, or is it?

The difficulty is that the phrase is bandied around by business lobby groups whether it means anti-big business or anti-small business, whether it is anti-enterprise or anti-monopoly.

These are emphatically not the same. As a Liberal, I am absolutely in favour of enterprise, of entrepreneurs who – as Anita Roddick used to define it – are able to “see the world differently”.  Of business trying to re-think the way the world works from below.  Of creative destruction.

That does not make me automatically in favour of feather-bedding the monopolies, forcing us to do business with one company – or allowing a handful of companies, like Amazon, Tesco or the payment systems owned by the big banks, to extract percentage of an increasing number of transactions.

These two versions of being pro-business are mutually incompatible. If you are pro-enterprise, then you must be in favour of controlling the forces of monopoly to let competitors in and lower their costs. If you are in favour of protecting monopolies, in what sense can you be said to be pro-enterprise?

So whether Ed Balls is pro- or anti-business is beside the point. The real question is to stop pretending that is where the fault line in the argument lies.

Is the coalition pro- or anti-enterprise? David Cameron said today that his government has reduced bureaucracy for small business. That is certainly pro-enterprise – but is he doing enough to tackle the banking oligopoly which constrains them? Is he tackling the payments system, or Amazon, trying to rake off a percentage of every transaction? Is he pro-competition or pro-monopoly?

Is the CBI pro- or anti-enterprise? And if it is pro-enterprise, how can it defend the interests of the huge aspiring monopolies it has as its members?

So let’s articulate the business issue as it really is – can we support enterprise? Or only as far as competition is tolerated by the really powerful players?

Middle-sized is beautiful

The news emerged yesterday that the successful publisher Quercus is now up for sale because, according to co-founder Mark Smith, "the publishing industry seems to be polarising around very big and very small companies.  It's difficult for companies of our size."

The immediate cause of all this is the anti-competitive thumbs up to ridiculous mega-mergers, like Penguin Random House.  And of course to the disappearance of most of the middle-sized bookshops.

I don't think, when we launched the Clone Town Britain campaign ten years ago, that we expected the great clear out of middle-sized retail chains.  Nobody really predicted the euthanasia of the clones.

You can see why now.  The semi-monopolies like Amazon are riding high.  The small, local bookshops have a kind of quirky personality and authenticity of their own - but why go to Waterstone's?

So much for the middle-sized retailers, and the middle-sized banks were snapped up more than a century ago, in the UK.  In fact, the middle sections of the economy are everywhere being hollowed out.  The banks don't like them and they lack the clout of the big or the personality of the small.

It makes the UK economy vulnerable.

I was thinking about this because of a fascinating item on the PM programme on Wednesday (here, 36 mins in), about a conference hosted in Staffordshire by JCB about the German Mittelstand sector - the family-owned middle-sized companies, which underpin the success and stability of the German economy.

Judging by the item on PM, they also underpin the stability of German society.  They have few shareholders, since they remain in family hands, but the employ four out of five of all German apprentices.

But the real clincher is that the Mittelstand sector is completely dependent on the German co-operative banking sector.  Only 20 per cent of them bank with private banks.  The rest rely on co-operative banks or the locally run Sparkassen.

So if you want to see why the German economy is more stable than ours, you need look no further than this.  We have no Sparkassen.  We have no co-operative banks - in fact, co-operative banks are not legal in the UK (the Co-op Bank was owned by a co-op, but wasn't a co-op itself).

It is the existence of this banking sector that explains why they have a Mittelstand and we don't.

Of course, I am also fascinated by this because I have also just written a book about the decline of the middle classes in the UK (Broke: How to Survive the Middle Class Crisis), which explains how our own economy is losing its middle - there may be a generation before we lose it, leaving a tiny elite and a vast sprawling, struggling precariat.  But middle-sized is important: it is a ladder for the poor out of dependence.

I also believe that middle-aged is beautiful too.  Let's hear it for the middle.

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The narrowing school choices for the poor

I have rather belatedly read the findings of a fascinating report by the Sutton Trust (thanks, Dale) which arrived in my in-box just before Christmas - and it does give a worrying snapshot of middle class panic about schools.

The report found that a third of professional parents have moved house to be near a better school.

Now, the first thing to say is that I'm not about to condemn people for wanting the best school for their children.  There is an irritating narrative around this which suggests that anyone who tries to choose a school is some kind of ultra-pushy social climber.

I don't accept this.  Heavens, I may even move myself for the same reason.

But findings do rather underline my experience during last year's Barriers to Choice Review.

Officially, there is no such thing as school choice.  It is, instead, the 'right to express a preference'.  But the Sutton Trust report Parent Power? suggests that, if moving house is necessary to get the school you want - or avoid the school you don't want - then this really is an option only open to the better off.

Nor is this just the middle classes.  The report defines 'professional' as socio-economic group A.  Goodness knows what the rest do.

The second finding which I was intrigued about was the way that parents go about making their preferences.  Rather more, in all socio-economic groups, make up their minds by visiting the school and talking to parents than they do from Ofsted reports or league tables.  Which is sensible, after all.

This very much confirmed what I found, which was that people's requirements for their children's school go very much beyond what is in league tables. They want to know about the friendliness, creativity, humanity of the school - not just the approved data.

Once again, these are not choices that are recognised as important by the people running UK education - which is why personally I back the free school movement, because people then have the opportunity to set up diverse styles of schooling.

But then, in areas where the population is increasing rapidly - also places with more pupil premium pupils - then the struggle for the best schools is going to intensify in the years ahead.  I met one chief officer who needs a new school every ten years just to keep up with the population.

Where I found difficulty agreeing was in the Sutton Trust's prescription: yes, there needs to be reporting about the socio-economic balance of admissions, but I don't think we should fuel the tutoring arms race with vouchers for tutors for poorer families.

On the other hand, something has to change.  Those self-serving admissions criteria, for example by the fearsome super-selective schools, need to be balanced by a broad duty to promote a social balance inside the school.

State-funded schools which don't adopt some responsibility for the wider well-being of their neighbourhood are not fulfilling the social contract that we might reasonably expect of them.

Some kind of duty along these lines wouldn't undermine the academic focus of super-selective schools. But if schools narrow their intake to those who can afford the coaching to pass entrance exams, then they owe their neighbourhood some route whereby less advantaged local people can aspire to get their children up to that standard.

I don't think that tutoring from the age of five, in some places, and on the industrial scale it is happening now - and I passed a packed maths class at our local swimming pool at 5pm this evening - is going to provide us with the creativity and imagination that the next generation needs.

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Explaining yet another heart of darkness

I remember one of the scandals that most influenced my political thinking in recent years was the bizarre events at the animal laboratory at Huntingdon Life Sciences in 1997, when secret filming recorded employees deliberately punching the animals.

I don't mean that I am somehow putting cruelty to animals above cruelty to humans on the great moral scale, but it does set the issues in stark relief.

There were no religious or cultural or economic reasons why the animals should have attracted such malevolence.  There was no civil war, no spending cuts which made them more vulnerable.  Yet somehow it had become normal for a handful of employees to abuse them.

I came to the conclusion, thinking about it then, that it was a symptom of the situation: when you are allowed to inflict pain, as you are in animal laboratories, then somehow it tends to attract contempt - from the abuser to the abused.

That is a Liberal understanding, it seems to me.  It means that, wherever there is a situation where the law appears to condone a power imbalance - and small abuses to humans or animals - then far worse abuse seems to become normal.  It may attract cruel individuals, but the hard truth is that it doesn't seem to be about sadism by individuals - those involved collectively close their minds, eyes and consciences to it.

It isn't just a power imbalance - there are lots of them (parents and children, for example) - but it matters when small cruelties are condoned and where the world can't look inside: like a refugee camp in a war zone, or a animal testing lab, or the middle of an inaccessible jungle.

It seems incoherent, yet it also seems to happen all the time, and the devastating photos from Syria yesterday are just another example.

The nature of the regime there, and the desperate situation, seems to have created another gap - a small permission to abuse that allows in this very human, yet titanic kind of evil.

Whenever abuse appears to be allowed, even in small ways - even to animals - it appears to spread, because permission to abuse comes with contempt attached.

Now, it so happens that I am reading at the moment The Dream of the Celt, Mario Vargas Llosa's powerful novel about Roger Casement, which touches on this very issue.

History remembers Casement mainly for his trial and execution for treason in 1916, but has tended to forget the courageous and determined journeys he made, in the Congo and Amazon, documenting the horrors of the rubber trade, the gratuitous cruelty, the genocidal destruction of tribes - held violently to agreements they had signed without being able to read - the tortures and terrifying deaths inflicted on the families of anyone who dared to resist.

Mario Vargas Llosa clearly intends to indict the excesses of modern capitalism, and there is clearly an element of that.  But I don't think greed really explains it.  The real tragedy seems to me that both Casement's cases conform to the pattern: mild abuse is sanctioned, and - human beings being what they are - a contemptuous, genocidal heart of darkness is the result.

The novel describes Casement coming to a conclusion along these lines too, wondering why the Amazonian tribes resist so fitfully - understanding that a kind of spiritual horror overcomes them and undermines their will.

It may be, as the novel describes, that Casement concluded that this little chink which civilisation allows - with such terrifying results - is a natural result of imperialism in practice.  That is why he became such a committed advocate of an Irish rising.

I read the book because an Irish friend of mine said it had convinced him that, instead of being a footnote to history, Casement was actually one of the most important Irishmen who ever lived.  I am inclined to agree, despite any lingering controversy about the remainder of his life.

But when I hear about Syrian photos, it reminds me that there are deeper questions to answer beyond whatever is happening in Syria.

Why does this kind of horror happen?  For a Liberal, it seems to me, there is this partial answer - it happens whenever small cruelties are allowed, and where power imbalances are sanctioned, and it happens inevitably.

But one final thought.  This insight is fraught with dangers.  When you seek out very small power imbalances, in search of small abuses, you can so easily become the tyrant yourself.  Such are the paradoxes of human life and politics, as we are seeing in another example this week.

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Why Labour never tackled monopoly before

Some years ago now, I was involved with the team at the New Economics Foundation running the highly influential Clone Town Britain campaign - the one that argued that every high street was beginning to look the same.

As an aside at this point, I might say that - although I still think we were right - I don't think any of us expected that the situation would be changed, not by the disappearance of the little shops, but by the euthanasia of most of the clone retailers.  But that is beside the point, for now.

During the umpteenth Competition Commission review of the retail market, I had come to the conclusion that proper competition was the way forward - competition that would allow a diversity of retail formats to exist, not just a bit more competition between the big four.

But how were we going to put any pressure on the competition commissioners, shadowy people at the best of times.  We decided to hold an academic seminar at an outpost of London University, and invite them.

Lots of people came, including a contingent from the Office of Fair Trading and some of my think-tank colleagues involved in the Clone Town campaign.  We went round the table introducing ourselves and two things became immediately and worryingly clear.

First, nearly all those from the Competition Commission had been seconded from the European Commission, and were not much interested in what I would call competition.  They were interested in building up giant European champions to take on the giant American champions in great transatlantic clashes.

Second, it was clear after the first two people spoke that - almost without exception - the representatives of the Competition Commission hated us with a deep and bitter loathing.

I was staggered that they had even heard of us.  It was a little disturbing, especially for a mild, unpolitical person like myself, unused to being disliked quite so intensely.

"What should we do?" one of my colleagues asked.  I said we should reply, as George Bush used to say about terrorist outrages, at a time and place of our choosing.

But I also came away wondering why competition had been so sidelined in this country.  I came to the conclusion it was largely the fault of the Lib Dems.

Hear me out on this one.  Competition used to be the central economic plank of the Liberals.  After the 1950s, they tended to forget it.  They abandoned 'free trade' as a Liberal maxim and consequently lost control of its meaning to the so-called neo-Liberals (if such people really exist).

The Conservatives have never been very interested in competition.  They think, rather like the Competition Commission, that if a company has an absolute market dominance, then it is because people must want them do.  If they have it, they must deserve it.

Labour has never been interested in competition ether.  In fact, Blair and Brown both seemed to prefer a situation where a handful of mega-companies dominated their own markets, believing they could then control them - which of course they never did.

It was left to Liberals, as it always is, to bang the drum and keep up the pressure for market diversity.  When they fell silent, it was hardly surprising that the diversity got squeezed.

So when Ed Miliband starts talking about competition, that is for me a hopeful sign.  It is so because we urgently need competition back on the agenda, and because it might encourage Liberals everywhere to dust down the central plank of their traditional approach to economics.

What I found surprising about Miliband's intervention on the subject is that he only talked about the banking and energy markets.  I fear this means he is simply chasing headlines because it implies he won't tackle the others.

What about retailing for example?  Where one retailer has over a third of the grocery market - and consequently pays its suppliers in 90 days, rather than the usual 30, funding itself to the tune of an interest free loan equal to two month's stock.  Will he tackle that?

What about pharmaceuticals or seed manufacturers, who are attempting to lock us into a semi-monopoly with their GM food patents?

And most of all, what about the new generation of intermediaries, which push up inflation by taking a slice of every transaction if they possibly can - Amazon, Visa, Google?  Will Miliband dare?  I certainly hope he does, before we are all trussed up in the most illiberal monopoly power since the days of Standard Oil.

How to rescue the middle classes - and why Miliband may not

Here, if you want to cut to the chase, are my conclusions in the Guardian this morning about how to save the middle classes:

"It means ratcheting down the price of property, rescuing pensions and standing up to the financial elite and those who seek total economic efficiency – for whom the relative independence of a middle tier is a glaring inefficiency, just as the working class was before them.

"But the most important factor in the survival of the middle classes is going to be their own entrepreneurial zeal, to create the local businesses, local banks and local institutions we need – their ability to carve themselves a sustainable niche in the economy.

"For that, they will need powerful political support to protect them from aspiring monopolies that would devour them – and it isn't clear whether they will get it..."

Of course, there is more to it than that.  There are global trends and great UK mistakes to contend with, but the main conclusion is this: if Ed Miliband wants to talk about the middle classes, he is going to have to think a good deal more radically than the traditional stuff dragged out by politicians on these occasions - help with home-buying, help with childcare, better schools.

You can't just carry on helping people knock the edges off the economy, because - in the end - it is the structures that are against you, as they are now.  The way we have designed the global economy is actively corroding middle class life and middle class values.

And if you want to know more, do consult my new book Broke: How to Survive the Middle Class Crisis.

Why Miliband's banking cap doesn't fit

You wait years before you get an intelligent intervention about the middle classes, and then suddenly three of them come along at once.

Ed Miliband has now finally made his speech, which you can read in full here.  Nick Clegg launched a report for the think-tank 4Children describing how this generation is the first for half a century or so to expect their children to be worse off than they are.

There is an element of bathos about putting it like this, but I can't help mentioning that there was a third intervention.  Yes, you  guessed it, the updated, 'affordable' edition of Broke: How to Survive the Middle Class Crisis is now published and on the shelves.

This made it a strange week for me.  For the past year, I have been working almost entirely on the two issues of the middle classes and how to get a more responsive banking system.  Suddenly, and thanks to Miliband, both issues hit the headlines at exactly the same time.

I have now finally read Miliband's speech.  Let's get this clear: I applaud him for tackling the issue and for his courage in recognising that the trends corroding the middle classes began before the current coalition took power.  But really - he is going to have to do better than this if he is really going to shift the debate.

Let's just look at his proposal on banks.

I am absolutely in favour of market caps, not just in banking but in retailing and energy and many other sectors as well.  The Office of Fair Trading says that market distortions creep in over a market share of 8 per cent, and - although you might not go that far - I see no reason why any company should build up more than 15 per cent in any market.

That would be a Liberal approach.  It would mean more competition, better customer service, lower prices.
But in banking, that is not a solution to the basic problem - which is that the big banks are no longer geared up to lend money to local business.  They have no infrastructure to price risk for local business.  Without local banks, we have no direct link between local deposits and local enterprise - as they have in most of our trading partners.

The coalition has carved two more big banks out of Lloyds and RBS.  Miliband wants to carve two more.  That will mean more competition at national level - but will do very little to provide what we really need: local banks, committed to local business, and with the infrastructure and local intelligence to support them.

Miliband seems to have proposed a symbolic solution designed to show he is going to be tough on the big banks, but has not succeeded in convincing me that he is serious about a new tier of banking - and I don't see why the UK should be almost the only major trading nation without one.

Three quarters of small businesses in Germany bank with their local sparkassen.  UK small businesses have no equivalent.

I don't give up hope.  Miliband's office is looking at local banking now.  His advisors have talked about community banks.  But what we badly need is proposals.

This gives time for the Lib Dems to make the local banking and local business issue their own.  There is more competition, thanks to the coalition.  The big banks are somewhat more secure too, though the risk of another banking crash via wild derivatives seems little further away.

But on the crucial issue of linking local deposits with local enterprise - that is where we need commitment, and I believe that the Lib Dems will expand on their 2010 manifesto commitment and adopt this approach.  And if you have been wondering - this is what they need to do.

The real source of the middle class crisis

I went to a school reunion recently. We are middle-aged, middle class survivors, in a sense. Some of our fellow public schoolboys from the 1970s have died. One or two have even committed suicide, but we are still around, largely happy, not always thriving, but settled.

What is most unexpected about the small group of us who meet once a year, upstairs in a bar in London’s Covent Garden, is how diverse we are.

There are two builders, a furniture restorer, a very successful barrister, a medical consultant, an alternative health therapist, and a writer (me). There is also a garage owner, a fireman, an undertaker, a sales director, and an engineer, among others.

We spent our whole schooldays being told how privileged we were, and we were certainly privileged in many ways – most of us own our own homes, though not all of us. 

But if you believe the rhetoric about independent schools, on either side of the political divide, you might have expected us to have been more of a predictably cohesive group.

But we have certainly benefited from the age we lived in, from free university education and student grants, and from inheriting the first staggering rises in house prices from our parents. We have trained as professionals in the days when they had some freedom of manoeuvre, before the combination of McKinsey and Goodhart’s Law.

We don’t talk about money much – we are too middle class for that – and our incomes clearly vary enormously (one of us has even retired). But we are not the narrow slice of the class system you might have predicted. 

We seem actually to straddle a huge variety of different kinds of middle classes, but we all worry about our children, and their ability to survive in the world that is emerging, here and abroad.

Those of us who are tolerant of getting into debt, especially property debt, seem to have inherited the world. But even they seem unlikely to pass it on to their children, who will struggle against an emerging middle class almost twice the size of what it is today around the world. 

 It is strange that our secondary education should have taken place with a background of the Three Day Week, the Energy Crisis and the virtual collapse of the UK economy – yet we have been on the winning side for most of our lives. 

At the same time, when the nation is incomparably richer by conventional methods, our children’s lives seem likely to be seriously constrained. But for different reasons.

The middle classes in the struggling northern England have their problems too. The unbalanced economy, which seems to get more unbalanced with every month that passes, has sucked the enterprise out of the north, leaving it with a constrained, shrinking public sector. 

The middle classes can afford to rent or buy, but their professional room for manoeuvre is serious constrained, and the enterprises, the local papers, local banks, local food distributors, local shops, local abattoirs, which gave previous middle class generations an economic underpinning, have gone.

In the south, it is the other way around. There is work, but it struggles to pay enough to buy or rent because the housing market is increasingly geared to the needs of foreign investors and the mega-rich.

And here we get to the nitty-gritty. Because, behind all the headlines and soundbites, it is increasingly difficult even for middle income earners in mainstream work, including ever larger chunks of the middle classes, to get by without support from the government in the form of Help to Buy, or housing benefit or council tax rebates or tax credits or all the rest of the state’s generosity to its middle income earners.

Their children are living at home, their pensions have been corroded by the financial services industry. But political parties need the middle classes and they tend to hide these problems away by subsidising home ownership – even though it pushes up prices for our children.

What is actually happening is that everything we thought of as the mainstream economy is being pushed to the margins, often subsidised by taxpayers. 

 Energy prices rise as the big utilities extract the benefits of monopoly (and the French and Chinese take their nuclear subsidies), because successive governments wasted the earnings from North Sea Oil. Public services become increasingly unaffordable as PFI investors extract the results of successive governments’ determination – at whatever cost – to take investments off their balance sheet. 

Other monopolies make best use of the UK’s bizarrely forgiving corporate tax regime to move whole sectors offshore, as Amazon has done for the book market.

So when Ed Miliband suggests that Labour can save the middle class, he needs to re-think many of the economic assumptions of the past three decades.

Maybe he will. Or maybe he is just using the issue to flag up a kind of ‘all-in-it-together’ rhetoric. Either way, the usual combination of so-called middle class issues – around more childcare, better teaching and help with home ownership – are not nearly enough. 

The traditional Labour solution – Fabian welfare for the middle classes – are not adequate to the problem.

What can we do instead? Well, to find that out, you might just have to read the new improved, updated and affordable edition of my book Broke: How to Survive the Middle Class Crisis, published today...

How to go about rebanking the UK

Never in the field of human politics has one political speech been leaked so often by so few. Or so you might think about Ed Miliband’s economics speech, due for delivery on Friday.

Yesterday, it was about the middle classes – which just happened to coincide with the publication of my new improved, updated and ‘affordable’ book Broke: How to Survive the Middle Class Crisis.

Today, it was competition in the banking sector where they flagged the idea of a market cap, an important idea – if it can get over the horror of that kind of thing in the Treasury.

It is hugely important that Miliband has committed to building the diversity of UK banking, but there are two problems with this:

First, his colleague Ed Balls has been opposed to this agenda practically since the womb, so it would be strange if he had suddenly undergone some kind of Pauline conversion.  The fear is that it will be read as a piece of Labour positioning, part of an internal power struggle, rather than a serious contribution to policy.

Second, there are other ways of achieving the same objective.  A market cap would be vulnerable to legal challenge and it would be fought through the courts by the big banks.  There are European dimensions to the whole thing.

If this was the centrepiece of Labour’s strategy, there would need to be something else in reserve – if we are going to see real diversity in the local banking market in the UK, as other countries have, and to their huge economic benefit.

It so happens that, with the help of the Joseph Rowntree Reform Trust, I was working with Lib Dems in the Lords to develop implementable approaches to creating a new local banking infrastructure in the UK.

It is far-reaching and, what’s more, it can be done – and relatively quickly.  You can read the results here, published today.

The irony is that the Lib Dems were the only party to commit to baking diversity in their 2010 manifesto.  It would be ironic if they were outflanked on their own issue by Miliband.

But I don’t think they will be.  The commitment to diversity by the Lib Dems is far deeper than it is in Labour.  In any case, coalition or no coalition, it will require at least two parties to push through anything remotely like this.

Why this is Middle-Class-Week, and what it means

I have written rather too many books over the years, and they invariably miss the zeitgeist - often by centuries.  So I was flabbergasted this morning to realise that I had, at least on first inspection, hit the zeitgeist bang on.

Not only has Ed Miliband hit the headlines today with an article in the Daily Telegraph this morning about the plight of the middle classes, but Nick Clegg is due to talk later in the week about the way in which - for the first time since the Second World War - middle class parents expect their children to struggle more than they did.

Not only that - but my updated and 'affordable' edition of my book Broke - now subtitled How to Survive the Middle Class Crisis - is published on Thursday.  How about that for a conjunction...

In practice, I find that hitting the zeitgeist bang on is just as stressful as missing it my decades.  You feel you have to rise to the challenge.

I hope to do that in the next few days, and I will certainly have a go at rising to the challenge on this blog.  But there are two reasons why I believe this particular conjunction of events is important.

First, Ed Miliband is brave enough to say that the trends causing the crisis began before the coalition took office.  This allows us to talk about the squeezed middle in some kind of context.  This is, after all, a crisis that has been three decades in the making.

Second, since we are not talking just about the immediate cost of living increases, there is the opportunity to look at exactly why we are hurtling towards a new class division - between a tiny elite and a vast, dependent proletariat.

That provides the opportunity to discuss potential solutions which are bigger than the occasional Fabian-style tweaks in the tax and benefits regime.

I have a feeling that this is a significant moment, the very beginning of major political and economic change.  Watch this space...

Why the economy still needs rebalancing

"It's far too soon to say 'job done'. It's not even half done. That's why 2014 is the year of hard truths."

So said Nick Clegg in an interview on the Andrew Marr show.  He was talking about the economy, and he was absolutely right - the economy may be on its way towards recovery, but it is a long way from there yet.

Yet there is a hard truth which does need to be articulated.  It takes nothing away from the coalition's success in pushing the economy out of the hole in landed in by 2008.  That is, and will remain a Lib Dem success, but there is an absolutely vital element which has only just begun.

I don't know whether this is what the Lib Dem leader meant when he said the job was "not even half done".  But I hope it was, because the part needs to be clear what the objective is.  We need to be reassured that the objective is still the same as it was back in 2010: rebalancing the economy.

I say this because I fear the great objective of rebalancing was allowed to slip down the agenda since then.  The coalition has focused its attentions on the systemic risk to the financial system to banks operating under the safe umbrella of the government guarantee. But too little has been done so far to tackle the other banking problem – the lack of choice or competition in the banking sector, and the resulting sidelining of small businesses compared with other countries.

Yes, there is the seven-day switch regulations, which means more competition in the existing baning sector, but the existing sector is inadequate for the needs of the economy.

This is a Lib Dem issue.  It may even be the Lib Dem issue.  The closest to a proposed solution at the last general election in 2010 was in the Lib Dem manifesto, which promised to: “Break up the banks and get them lending again to protect real businesses”. This was translated in the coalition agreement along these lines:

“We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry. We will develop effective proposals to ensure the flow of credit to viable SMEs.” 

Let's face it; this has not yet been achieved.  Ed Miliband has made noises to suggest that he is moving in this direction, and it would be galling for Lib Dems to be outflanked on an issue that was once their own.

And don't let's pretend any of this is simple.  The UK economy has been pretty unbalanced since the Industrial Revolution, which the City failed to fund.  Keynes had another go via the Macmillan Committee in 1930.  It is the most important unfinished business of the nation.

It also seems to me that only the Lib Dems can achieve it.  But don't let's pretend it will require a little tweaking here and there.  It is a big project and, as Clegg said, "it is not even half done".  If that's what he meant...

When you lean against an Oyster machine by mistake

It struck me a few days ago, as I climbed on a London bus, how the everyday rituals of life change so quickly.

Until 2005 or so, the words "time, gentlemen, please" were pretty familiar - even if landlords tended to cover both genders by then.  But, a decade ago, would we have imagined that very familiar feeling of putting an Oyster card on the reader only to find there was not enough cash - especially if we have waited for the bus for 15 minutes or so in the rain beforehand?

This happened to me over the weekend again and I discovered, because the driver told me, that I can now pay with a debit card, swiping it across the reader.

My Co-op card didn't work (another irritation with Co-op) but my other card duly lost £1.40 in one quick sweep.

This is, of course, very convenient.  But there are a couple of worries about it, and they are linked.

The first is that our local buses are often absolutely packed on a rainy evening, and I have often squeezed in up against the card reader myself.  If I do so now, the machine is liable to debit me £1.40.

The second is that there is absolutely nothing anyone can do about this.  The driver is powerless to put it right because the infrastructure is extremely distant, opaque and unresponsive.  We know how often the software makes a mistake, and of course you can get it put right - but the prospect is exhausting and it is intended to be.

This is true in so many areas of modern life.  There are complex systems between us and the organisations we use, and the drivers or conductors or cashiers are now powerless machine minders, trusted to do little more than press go and stop.

This is fine most of the time, but we have all had infuriating experiences when it is not fine - and nobody is able to put things right, as the bus conductor would have been able to do in my youth.

It is hard to underestimate how much this trend has alienated us from the faceless, unresponsive agencies that now dominate our lives.  It is important, a major barely-debated shift.

Is there a solution?  In the medium-term, software is going to be more flexible for all of us - or so I believe - and the concrete, McKinsey-style systems of control will begin to look like dinosaurs.

In the meantime, we need to find ways that intermediaries can over-ride these systems immediately, easily and transparently.  If only for the sake of human dignity.