Our long term economic madness

In May the Conservative Party portrayed the election as a choice between Tory competence and Labour chaos. Labour’s spending and borrowing compared to the Conservative “long term economic plan”. The electorate made their choice and the current government received a mandate to cut the budget deficit and fix the economy.

Britain is now purportedly on the path to economic sanity, but you can be forgiven for having some moments of doubt. In this foul year of our Lord 2015, after nearly six years of “austerity, we will still spend £70 billion over budget. Should we redefine what the word “austerity” means?

The economic madness really began when Gordon Brown and Ed Balls implemented their plans for a high tax, high spend, much enlarged state and continental style economy. As we know only too well, it grew completely out of control.

The government has the opportunity to reshape the British state permanently, and when ideas are floated about “thinking the unthinkable” and slashing budgets by 40%; there is a flicker of hope that they might grasp it with both hands. Sadly, there is too much evidence to the contrary to believe anything serious is really being done to end the public spending spree and return to a sensible, sustainable fiscal situation.

“Austerity” Osborne routinely talks flippantly about spending £2 billion here and £2 billion there on infrastructure projects, but not-so-funnily enough that is the exact sum of money that the UK has to borrow each week just to plug the gap between our income and our outgoings. This looks an awful lot like a policy of spending and borrowing.

The £60 billion a year we pay to cover the interest on our borrowings is now the fifth largest item of public spending, exceeded only by the budget for welfare, education and the NHS. Yet our government, elected on a platform of the “long term economic plan”, does not seem to grasp the severity of the situation.

The chancellor intends to cut the deficit to zero and run a budget surplus by the end of the parliament, which is the same aim he had in 2010. Yet we have NHS managers, council officials and BBC executives lining their pockets with taxpayer’s cash with salaries beyond the £142,000 earned by the prime minister.

We intend to build HS2 with £50 billion of borrowed money and build a replacement for Trident for approximately £60 billion of borrowed money, none of which is accounted for in the annual budget. How can we possibly afford these projects?

We borrow money to send abroad in aid, and go to great lengths to splurge the cash just to meet the budget target, resulting in scandalous waste and corruption. We do this every year, and boast about it, pat ourselves on the back because of it, despite the mountains of evidence of waste and corruption, despite the cash lining the pockets of third world governments and dictators.

Both David Cameron and George Osborne have spoken of the importance of being prepared for the “global race”, the great economic competition, yet we transfer billions upon billions (of borrowed money) every year to the European Union, which redistributes it to rival economies. It is not a rational economic or foreign policy to borrow money to give to a foreign body for the dubious benefits of being ruled by it.

I really do wonder sometimes if our leaders have any idea what they’re doing. Is this simply a matter of the blind leading the ignorant? It doesn’t really bear thinking about. Sometimes the only conclusion one can reach is that this is a mad country, ruled by mad people.

The Common Agricultural Policy – a costly protectionist racket

‘The Common Agricultural Policy forces consumers to pay ‘two or three times more for food than we would pay without the policy’
Dalia Grybauskaite, EU budget commissioner 
The way to build lasting economic growth [in Africa] is for Europe to end the CAP
-Sir Digby Jones, former Chairman, CBI.

The Common Agricultural Policy is an EU-wide system of agricultural subsidies. It is a form of protectionism that represents the worst of European Union parochialism. It is designed to “defend” the European agricultural industry from cheaper products from outside producers. The EU spends between £45-50 billion per year (£49 billion in 2013) on this system which is approximately 43% of the total EU budget. The subsidies are combined with protectionist measures such as import tariffs and strict quotas on certain agricultural products from outside the EU. This has made European food prices some of the highest in the world and is seriously detrimental to foreign farmers.

The CAP subsidies have often caused overproduction, which has led to food being destroyed, or sold at below market prices through export subsidies or being stored thereby creating the, now infamous, “food mountains”. The subsidies exports are flooded into third world countries, especially Africa. By undercutting local farmers, who cannot compete with the low priced subsidised imports, the policy is distorting the market and impoverishing people. With growth and development being absolutely essential to the long term prospects of third world countries,the CAP is seriously harmful their underdeveloped economies. The subsidies prevent them from exporting agricultural produce to the EU on a level playing field, creating inflated food prices for us, and economic stagnation for them.

History

During negotiations on the creation of the “Common Market”, France used its influence as the second major power of the EU to lobby heavily for subsidies for its farmers which have stood ever since. This privilege was her price for agreeing to free trade in industrial goods and one of the many benefits France enjoys for its status as the secondary power behind the project. The CAP was created in 1957 under the Treaty of Rome and was implemented from 1962.

It aimed to increase productivity and to protect agriculture throughout the EU by controlling prices and levels of production, and to protect the countryside by subsiding the rural lifestyle. It has in-fact had the effect of protecting big agricultural businesses and enriching hereditary landowners while also damaging the rural environment. The subsidies led to big agri-businesses growing ever larger and stifling smaller producers. The CAP, by guaranteeing prices, encourages producers to use every bit of available land. Inevitably, they have altered the rural landscape with intensive farming. Every furrow is valuable thus efforts are made to use every bit of available space.

A landscape which had been unchanged for centuries and was famously pleasant and aesthetically pleasing is now less diverse. Ancient hedgerows have been torn up, swathes of land are blighted by industrialised prairies and polluted with high levels of chemicals and pesticides (leading to water pollution and soil degradation). The natural habitat of wildlife have been disrupted or destroyed, leading to widespread declines in the populations of many farmland bird species and other wildlife.

By the 1990’s the process of reform began in attempt to curb the amount of waste and address environmental concerns. By 2013, after the first full review since the policies inception, a number of reforms were been approved to be implemented in the period 2015-2020. They represent an attempt to move towards sustainable agriculture and prevent overproduction and include policies intended to preserve the environment and encourage new entrants into the industry. The reforms, while welcome, were a long time coming but have done nothing to address the fundamental problems with the policy. Further, far reaching reforms, of the kind sought by Britain for decades, are unlikely to happen because France and her allies benefit disproportionately from the subsidies and will not allow changes to that threaten the status quo.

Costly protectionism

Britain should strive to be an open, free-trading nation with a global outlook. The CAP is the very antithesis of free trade; it is protectionist central planning and economic isolationism. The cost of food has been steadily declining for decades but the great recession has created a cost of living crisis in Britain and across Europe, food prices have risen and the CAP exacerbates this, costing hard pushed consumers. The price inflation can be seen by comparing wholesale food prices in Europe to world market prices, this shows that we are paying 17% more for food than we would under market conditions.

Central planning and market intervention always creates distortions and unintended consequences. The worst of all the damage caused by the CAP is the way it punishes consumers, especially the poor. The Common Agricultural Policy should be abolished; this would represent a drastic measure to address the cost of living crisis, cutting food bills for all European citizens and bringing relief to impoverished households across the continent.

Advocates of the CAP will protest but for the way forward we need only look to New Zealand. Farmers there had enjoyed generous taxpayer funding and were disconcerted at the thought of losing out but in 1984 when the government was faced with a budget crisis it decided to repeal all subsidies. Did the predictions of disaster and an end to small family farms come true? No, since then the agricultural sector has thrived!

Much like in Europe subsidised farmers in New Zealand had become dependent on government aid and were, in-effect, farming in such a way as to meet targets to make them eligible for subsidies.  This was detrimental to productivity and innovation. When all subsidies were removed farmers in New Zealand proved to be entrepreneurial, innovative and adaptable.  Now, instead of trying to maximise the amount of government aid received, agricultural practices are now motivated by the demands of consumers and farmers are focussed on good business practice. it is as simple as growing things that consumers want to eat. Productivity is up, efficiency and innovation has increased and the industry is thriving without taxpayer hand outs.

Abolish the Common Agricultural Policy and Europe could have a dynamic, diverse, prosperous and growing rural economy too, and we would all be saving money on our food bills.

Huzzah for the voluntary sector!

Hurrah, civil society is not dead! It warms one’s heart to know that there is still a great deal of compassion and get up and go amongst the British public. Just over six years ago an economic catastrophe of the kind not seen since the 1930’s sent us spiralling into a major recession. We are still suffering the consequences and will continue to do so for years to come. Unemployment rose, wages stagnated and a cost of living crisis struck; the poor struggled to pay bills and many found themselves unable to afford enough food for their families.

In response, various groups of empathetic people around the country got together by their own volition and decided to do something to help those in need. The aim was to provide the poor and needy with fresh food at the point of crisis. The food was provided by supermarkets and wholesalers and the food banks were set up purely through private charity, with not a single penny of public funding. They proved to be a resounding success and helped many people, thus they expanded across the nation and soon food supplies began to flood in from private individuals and businesses. Today, thousands of people are going to food banks and benefitting from the generosity and thoughtfulness of their fellow human beings. This is a national disgrace and a scandal according to left wing statists who have managed to shroud this great success story in political point scoring and negativity.

Ah, but they argue that a “rich” country like Britain should never have any need for food banks, that nobody in such an apparently rich country should ever struggle to afford food. They then use this notion, and the fact that the number of people using food banks has risen considerably, as an argument against austerity, and as a stick to beat the Tories with and prove that they are intent on starving poor people to death while they eat caviar from golden tea spoons and guffaw. Many even cite the issue as evidence that the whole capitalist system is fatally flawed and must be replaced. There a number of problems with these arguments.

First of all, calling Britain a “rich” country and pointing to its position in the economic league table as evidence that nobody should ever go hungry is a facile point to make. This country has a budget deficit of over 100 billion, a current account deficit of 70 billion and a national debt approaching 1.5 trillion (£1,500,000,000,000) that can never be paid back. The simple fact of the matter is that the United Kingdom plc. has gone bust.

There are however many wealthy individuals in this country (rather a different thing), but what do leftists want, to confiscate the property and money from the wealthy by force and hand them to the poor? Well, yes, many of them probably do. A few of them would probably rather like to put on their fresh-from-the-sweat- shop Guy Fawkes masks and string a few of the rich folk up before posing for selfies with Russell Brand. Revolution!

Imagine that, enacting such a redistribution process and marvelling at the subsequent exodus of people and wealth, the death of productivity and inevitable economic catastrophe- the food banks would not be able to cope with the queues formed. Those using food banks as an argument in their tedious theses that capitalism ought to be overthrown are wilfully ignoring the historical fact that shortages of food and goods are a permanent feature of centrally planned economies.

It is also important to realise that it is nonsense to believe that there were not many, many poor people struggling financially in previous decades, the economic crisis has simply exacerbated the problem. When I worked as a volunteer for a health and social care charity (mainly working with criminals and drug addicts) many clients sought referrals to food banks. The reasons that people use food banks are varied, around 1 in 5 cite low income and 1 in 6 cite benefit changes, beyond this the causes are wide ranging. There are social problems such as family break down, debt and crime that have been deeply engrained long before the current crisis, and glitches in the welfare bureaucracy are inevitable considering the sheer number of people on the books. The real shame is not that food banks exist at all, but that they haven’t existed for longer. The first one was set up in the year 2000 and was a success, due to this the initiative spread and many more opened. This fact rather discredits the argument that food banks are a symptom of coalition failure, unsurprisingly as more food banks appeared more people have made use of them.

So, what is the future for food poverty and food banks in Britain? The Archbishop has called for the state to get involved but this is exactly the wrong solution. Food banks have been a resounding success and far from being a “disgrace”, as the self righteous Jack Monroe has said, they are a victory for the voluntary sector and a great achievement for the industrious individuals running them. How would state funding, and a new government department, improve what is already working so well? It is baffling to cite the failures of state bureaucracy as one of the reasons people are left short and then argue for the nationalisation of food banks. It makes no sense to call for taxpayer funding when we are facing years of cuts in public spending to bring the nation’s finances under control. Government profligacy is a major factor in our current economic plight; we have to look different solutions.

For a start the left must stop politicising this issue and using it to further their ideological agenda. Food banks are not an argument against austerity, especially when that so-called austerity involves borrowing £2 billion a week just to cover government expenditure. Their moralising over food poverty becomes transparent when they avoid discussing the inflation of food prices caused by the Common Agricultural Policy (heaven forfend that they would criticise their beloved EU), or the heavy taxation (including lifestyle taxes) of the poor as previously mentioned by Simon Gibbs.

What we need is for the state to keep out of food banks. If politicians want to help they should encourage and help their constituents set up independent food banks in their communities. The real solution is to expand the initiative further, food banks should become a permanent fact of our national life and we should celebrate them. Lets have one in every town! Many supermarkets already have donation baskets; I want one in every supermarket across the country! The fund raising operation should be expanded to help cover the costs of start ups and operation. Other charities have donation boxes in shops, fund raisers in the street, why not the great charities feeding our hungry? The call for the state to swallow the sector into its bloated and creaking welfare state is misguided. The success of food banks have shown us that with a little stimulus from conscientious individuals civil society can spring to life. Rejoice that our society is one capable of great humanity and compassion, let’s harness that and encourage the voluntary sector to even greater successes.

*Donate to the Trussell Trust*

Red meat for the 35%

Well, that was a drab affair. There was not much energy or excitement around the Labour conference and this year Miliband was not able to find the same spark as he had in previous speeches; those that led to a resurgence of spirit in the Labour ranks and surprised the public, the punditry and the party. They were rife with big ideas, big slogans and door step friendly sound bite policies that led to a post-conference poll bounce. I doubt that there will be any significant movement in the polls as a result of this conference. Ed Miliband has consistently surprised me with his ability to give great speeches, and right when he is under pressure too. Not that his policies or ideology attract me but I had to admit to being impressed when he managed to enrapture an audience without notes and capture the attention of the public. This time he fell short, it was not a good speech and it revealed just how narrow an election campaign Labour plans to run. Gone was the whole notion of “one nation” or any attempt to meet issues such as the economy and immigration head on. This was all about throwing enough scraps of red meat to their loyalists, activists and core tribal voters; they are now the party of the 35%.

Ed Balls speech the previous day was even worse. It was uninspiring and did not address any concerns over Labour’s management of the economy. Ed Balls swung from left-wing populism, designed to get the seals to clap, to token disclaimers about the reality of Britain’s financial situation. It seems that the Labour Party is willing to nod its head towards the vast deficit and national debt but is not brave enough to explain what it plans to do about it. Ed Balls announced the already leaked plans to raise the minimum wage, axe the “bedroom tax” and put the top rate of tax back to 50p. Clear answers to the issue of “difficult decisions” were absent, he said labour would maintain the child benefit restrictions, saving a meagre amount of money in the grand scale of things. Given that the state of Britain’s finances is nothing less than a national crisis, making hollow concessions about the need to make ‘difficult decisions’ while planning to put in place new punitive taxes that will bring in meagre amounts of money is a pathetic response. The Raising of the top rate is a counter-productive populist policy for the electoral base, it might excite the 35% but could lose the treasury revenue.

Ed Miliband’s speech was chock full of the kind of fool’s gold idealism and flatulent progressive language that so excites the left. He used the word “together” an absurd amount of times, to convey the image of Labour as the party of social solidarity. They are the party for the many, and their movement is a collective endeavour… the usual socialist hot air. All eye rolling bilge of course, especially from a party with an electoral strategy to limp over the no. 10 threshold with only the votes of their core supporters and a few lapsed Lib Dems. The speeches highlights involved bashing the rich and the Tories, linking them all together with predatory big business and oligarchs. He played to the electorate’s perception of the Tory Party as being representative of the privileged few, contrasting the Conservative ‘leadership that stands for the privileged few’ with Labour’s leadership that fights for you’. Such lines hit the target but were drowned out amidst the tiresome anecdotes in an overlong speech of vague aspirations that failed to make Ed Miliband seem any more prime ministerial.

The Labour Party are on the retreat because Ed Miliband no longer seeks to unite one nation, instead he plans to cobble together a majority by pandering to the party faithful. Left wing populism for the 35% target that ignores thorny issues like the welfare state, spending cuts, immigration and constitutional reform. We now know that the key policies of the campaign will be the plan to raise the minimum wage and invest in the NHS through the “Time to Care Fund”, true Labour populism. Although raising the minimum wage will inevitably lead to job losses and increased difficulty in the job market for the young and unskilled, no matter, it’s a great sound bite and the activists will have a spring in their step when they knock on doors. Investing in the NHS and pledging to hire more nurses, doctors and midwives by clamping down on the tax avoidance schemes used by evil corporations, taxing properties worth more than £2 million and raiding the tobacco companies is a great red meat policy for the party base. Still, it is essentially a foolish avoidance of NHS reform; this behemoth of a health service, creaking and overstretched, that teeters along the edge of insolvency will eventually need more than cash injections from the tax payer.

Labour are ducking the most serious issues and this failure is thankfully likely to keep them out of power. Ed Miliband “forgot” the part of his speech when he was meant to talk about the deficit; basically he bottled it and instead clung to his comfort blanket. For this folly he will be ravaged in the in the media and rightfully so. The economy is the number one issue and the public are wary of Labour’s record yet Miliband was silent and Balls unimpressive on the topic. The potential future Prime Minister forgot to talk about the economy! This is not someone to lend your vote to; there is no sign that the £75 billion in spending cuts that are needed are being contemplated with any seriousness. Maybe I’m wrong, perhaps they will get away with it, perhaps by rallying their loyalist troops and benefiting from their fixed electoral advantages Labour will manage to form a weak majority government. Then we all get to see the British François Hollande swing into action, with his dismal cabinet behind him, ready to implement his ten year plan to realign Britain to Milibandism. Ugh.

Piracy and Profit, Adapt or Die

Is it time for “information based” industries to consider innovative adaptation, rather than legislation and prosecution, as a means of dealing with the hydra-headed beast of online piracy?

The U.S. Supreme Court recently refused to hear a file-sharing case involving a $675,000 verdict against Joel Tennenbaum. While a college student, Tennenbaum illegally downloaded thirty songs and shared them on a peer-to-peer network. In Germany, the Pirate Party has won seats in four state parliaments. They favour a complete overhaul of copyright law, and national level polls put them near 11% of the popular vote. Pirate parties are springing up across the globe, and even the U.S. has seen its share of resistance towards the increasingly combative stance of the media industry. There was a fierce outcry in the States over the now failed SOPA and PIPA. Undoubtedly, there are more surprises awaiting both business and policymakers in the coming years.

Since copyright and patent law require a relatively compartmentalised market for enforcement to be effectual, the appearance of new and chaotic means of distributing pirated material could challenge the core of modern, “information based” business models. The Internet seems to have an uncanny ability to dynamically circumvent most censorship attempts. The Pirate Bay, the largest file-sharing website in the world, has recently published a guide on how its users can bypass court ordered blocks by ISPs. Like water, illegal file-sharing finds a way.

© John Abella

The leakage of pirated information into the public sphere affects more than the media industry. It affects every business model which depends on intellectual property to make a profit. The industrial revolution centralised the means of production away from craftsmen and artisans, but file-sharing has the potential to usher in a new era of decentralized manufacturing. Gadgets and medicine could be reproduced in local 3D printing shops, underground pharmacies, or even in the comfort of your own home, using illegally downloaded formulas and recipes. The day an affordable, medicine producing apparatus finds its way into retail hands, the holders of blue chip names like Johnson & Johnson, Glaxo, and Merck would be wise to unload their stock. Who will pay extortionate prices for life saving medicine when you can pirate molecule structures online?

In the information revolution of our day, multinational corporations play the role of the Luddites; a mob of legal teams wave pamphlets of patent and copyright legislation. One should ask whether “information based” businesses, threatened by a lack of effective copyright enforcement, should seek to adapt themselves to this new force of nature, rather than fight it with huge but leaking dams. By finding ways to lower prices, innovative companies like Spotify, Apple, and Netflix have demonstrated the benefits of initial compromise with the pirates; other companies could find even more radical ways to adapt. As information becomes more readily available, both legally and illegally, it’s increasingly clear that failing to adapt will be failing to survive.