Monday, 18 April 2011

The Wrong Plan for Growth?

“…Yet the contrast between this political certainty and the underlying nature of the problem is a stark one. In the policy debate, the term ‘regulation’ lacks a commonly agreed definition, and the causal link between an increase in regulation and lower economic performance is at best crudely described….The policy positioning is largely devoid of convincing empirical support – as if it were so obvious as to need no justification. It is hard to think of any other area of government policy where the gap between public policy assertions and an evidence base is wider”. Deiter Helm, Oxford University

Put a business lobbyist together with 1) another business lobbyist or 2) a journalist or 3) a politician and you can be sure that the chat will soon turn to the ‘burden’ of regulation, ‘red-tape’ or bureaucracy – call it what you want – constraining the economy, lowering economic growth and generally making life miserable for the Randian superheroes of the entrepreneurial class.

Take a brief look at any of the manifestos for the Scottish Parliament elections and you could be forgiven for believing that the business lobbyists are correct; the burden of red-tape must indeed a major barrier to economic development in Scotland if our politicians are to be believed. I know from years of experience that to challenge the consensus on this topic is to invite ridicule. That Scotland as part of the UK is an over-regulated economy is treated as a revealed truth; a fact that requires to be asserted, never justified.

Some of us thought the banking crisis – manifestly a crisis (at least in part) of weak regulation – might provoke an open debate on the role of government regulation in an advanced economy. We were wrong. If anything, the hand of the red tape warriors has been strengthened. How did it come to this?

Well, the regulation of the economy is a boring and technical subject. It’s also a slippery one. Regulation’ is used as a catch all for very different issues: regulation of the workplace (minimum wage, health and safety, employment protection), regulation of the environment and the regulation of utility industries. It is the first of these (but also the second – they don’t understand the third) that tends to animate the business lobbyists. But they are rarely specific; by and large complaints about red-tape are general in nature, probably because lobbyists understand that the minimum wage and protection from irresponsible employers are actually quite popular with the public.

This approach is apparent in the Coalition’s Plan for Growth; a plan predicated on the assumption that the UK is hugely over-regulated (and over-taxed). In announcing his recent Budget the Chancellor argued that the UK’s competitiveness had slipped and that we had been overtaken by other countries – specifically Germany, the Netherlands, Denmark and Finland. The evidence cited? The World Economic Forum’s Global Competitiveness Report 2010-11.

Does this Report support the Government’s approach? No, it doesn’t. Indeed, it suggests that the deregulatory, low tax approach is exactly the wrong way to go if we want to improve competitiveness (let’s assume for the moment that the validity of the concept of competitiveness isn’t very dubious – which it is) in a similar fashion to the Germans, Dutch, Finns and Danish. We are already under-regulated in comparison to these nations and we are also lightly taxed.

For my sins I’ve now read all 501 pages of the Report and the fruits of my labour are now available in the STUC report, The Wrong Plan for Growth? Budget 2011, the Global Competitiveness Report and the dangers of formulating policy on a false premise which can be found here.

Problem is that there seems to be no political appetite whatsoever for an evidence based discussion on these issues. Wonder why?

Stephen Boyd - STUC

The Future of Manufacturing Industry in Scotland

On the first day of Congress 2011 in Ayr, the STUC published a discussion paper on the Future of Manufacturing in Scotland. The paper will form the basis of campaigning activity over the coming year and a web discussion forum will be establishd in the near future to enable debate about the report's recommendations. The STUC welcomes, and will respond to (serious) comments. The full report can be found here. This is the introduction:

An interesting thing started to happen after the financial crisis swept the globe in autumn 2008… politicians at Scottish and UK level started to talk seriously about manufacturing again. Indeed, a genuine commitment to examine how Government at all levels might more effectively support and nurture manufacturing has since been apparent in election manifestos and a blizzard of related policy papers has emanated from Whitehall and Brussels.

This fundamental rethink of economic and industrial policy is long overdue. The ‘financialised’ economic model, pursued with particular vigour in the US and UK, failed on both economic and social grounds: the narrow focus on finance and the primacy given to financial market participants in the development and implementation of policy led to a lop-sided economy; one prone to systemic crisis. Also, the model didn’t as was often claimed, lead to greater prosperity for all: it generated moderate GDP and productivity growth, an exponential rise in income and wealth inequality and a decline in social mobility.

And yet, the opportunity for genuine and substantial change already appears to be ebbing away. A full four years have now passed since problems first emerged in the US housing market but there has been no structural reform or effective re-regulation of the financial sector and the banks’ business models remain largely untouched. Incredibly, the influence exerted by financial insiders on economic debate and public policy appears undiminished.

The STUC believes that a reinvigorated manufacturing sector is a necessary component of a new, fairer and more sustainable economic and social model. Contrary to prevailing economic orthodoxy, there is no reason whatsoever that this cannot be achieved through a mix of clever and focused Government intervention together with reform of the financial sector to ensure that it supports rather than undermines the productive economy. Other advanced economies have managed to maintain far higher levels of manufacturing employment than the UK.

Scotland benefits from a skilled, productive and committed manufacturing workforce and many outstanding manufacturing businesses across a range of sub-sectors. Scottish manufacturing has experienced a stronger and quicker recovery than services. The STUC believes with the correct policy framework in place, manufacturing can continue to grow; both nominally and as a share of the Scottish economy.

The purpose of this paper is to provoke debate and discussion about the nature and shape of potential levers to support the growth of manufacturing in the years ahead.

STUC Congress 2011 Speeches - Economy and Industry

Speech moving Composite A There is a Better Way - Growing the Economy and Creating Jobs, delivered by Anne Douglas, Prospect and STUC General Council - 18 April, STUC Congress 2011

Congress, we meet almost exactly a year since the coalition government took office. The General Council was under no illusions about the nature of this government and we quickly moved to explain why deep and rapid cuts to public spending would be a disaster for the economy. Of course the Government didn’t listen – to us or anyone else for that matter.

Instead they proceeded with the emergency Budget of June last year followed by the Spending Review in October which confirmed a package of spending cuts without precedent in an advanced and solvent nation.

All through this process, Ministers acted as if growth and jobs would be unaffected – indeed they often had the audacity to argue that cuts would boost employment. They refused to learn the lessons of economic history, which tell us that cutting in a crisis will lower growth and increase unemployment. Ministers appear to believe, on the basis of nothing more than ideology, that reducing the size of the state will necessarily unleash a wave of private sector investment.

As we predicted, this smug, evidence-lite approach is proving hugely detrimental to the economy. The Office for Budget Responsibility – established by this Government – reported on the state of the economy at the time of the Budget last month. How had their forecasts changed since their last report in October?

·                     They now expect GDP growth to be lower;
·                     Inflation to be higher;
·                     Employment to be lower;
·                     Unemployment to increase on both claimant count and ILO measures;
·                     The balance of payments to worsen;
·                     Average earnings to decline; and,
·                     Household disposable income to decline.

And these last two points are particularly important. Even the Governor of the Bank of England has acknowledged that real wages are likely to be no higher in 2011 than they were in 2005. The last time real wages fell over a period of 6 years was the 1920s.

So –

·                     Real wages are falling;
·                     Household incomes declined in 2010 for the first time since 1981;
·                     Growth forecasts are being revised down;
·                     Unemployment is high and widely predicted to rise – and to remain high for at least the next couple of years;
·                     Long-term unemployment is stubbornly high;
·                     Long-term youth unemployment is still rising;
·                     All forward looking indicators of consumer confidence are collapsing; and,
·                     Understandably given collapsing demand, the private sector can’t see sufficient investment opportunities to plug the gap.

And Congress, all this before spending cuts begin in earnest. In these circumstances we simply have to ask where are jobs and output growth are going to come from?

The Government’s latest response is simply pathetic: A Plan for Growth based almost exclusively on business tax cuts and deregulation; a plan developed on the most spurious of evidence and one guaranteed to further embed the economic and social model which imploded so spectacularly in the banking crisis.

The Government has claimed that its spending cuts and unfair tax rises are ‘unavoidable’; with utter shamelessness, they have claimed that austerity is fair and progressive. They have claimed that we are ‘in this together’.

The General Council firmly believes that their programme is entirely avoidable, unfair and regressive – we have set out our case in detail; we have watched with little surprise but some dismay as Ministers have embarrassed themselves trying to respond to our arguments.

Congress the General Council will

·                     continue to develop positive alternatives – just today we have published a significant new piece of work on the future of manufacturing;

·                     we will continue to expose the dogma and ineptness of coalition economic policy.

This composite shows that:

·                     there is a better way on tackling the deficit – through fair and progressive taxation and forcing the super rich and corporations to face up to their taxation responsibilities;

·                     It shows there is a better way to sustainably grow the economy and create good jobs.

Congress, I ask you to support.

Tuesday, 5 April 2011

On the Tory Manifesto

The Scottish Tories published their manifesto yesterday. My time is limited this morning so I really can’t do more than offer some rough and ready thoughts on the Growing the Economy and Creating Jobs section…which starts with this jaw droppingly awesome paragraph:

“With an economy heavily dependent on the financial services and public sectors, Scotland more than anywhere else has suffered from, and is experiencing the lasting effects of, the failure of the financial regulatory regime created by the last Labour Government at Westminster and the problems stored up by its overspending. Worse, Scottish businesses and jobs have been hit severely by the recession, which owing to Labour’s failure to support business and address welfare dependency, lasted longer in the UK than anywhere else in the G20”.

Let’s break this down…

‘experiencing the lasting effects of, the failure of the financial regulatory regime created by the last Labour Government at Westminster

Didn’t the Tories have something to do with the creation of the regulatory regime? Perhaps Annabel might tell us exactly which deregulatory moves the Tories opposed? Sorry, but I can’t recall vocal Tory opposition when the FSA was handed a duty to ‘promote’ the industry it was meant to be regulating. However I can recall many occasions when Tory MPs screamed red-tape and business burdens when the Labour Government made any attempt to regulate (no matter how inadequate).

And are the Scottish Tories seriously arguing that the banking crisis was simply a consequence of poor regulation? Didn’t structure have something to do with it - the growth of ‘too big to fail’ financial conglomerates able to exert excessive influence over the economy and political system? How were such institutions ever to be effectively regulated? What about performance pay systems that incentivized risk taking? What about the abject failure of corporate governance? What about the growth of the unregulated shadow banking system? What about the role of the auditors and credit rating agencies? What about the wholly unsustainable business models pursued by people who knew they would not have to pay for systemic collapse? Scottish Tories, please remind me of your record on each of these issues!!

‘the problems stored up by its overspending’

Please no, not again.

Look, reasonable people will continue to disagree about the Labour Government’s handling of the public finances. It is an entirely respectable intellectual position (although I disagree with it) to argue that in the last years of its administration Labour should have been seeking to run a surplus. It is a preposterous position to argue that the current deficit - and the rise in stock of debt over the last couple of years -  are attributable only to the Labour Government’s mismanagement.

I have nothing more to add on this question except to pose this question: knowing what we know about the Tories at Scottish and UK level, is it reasonable to assume that, faced with the Labour Government running a surplus, their reaction would have been to applaud Labour’s sound management of the public finances? Or do you think that maybe, just maybe, they would have screamed for the money to be ‘returned’ through tax cuts? Yep, exactly.

“Scottish businesses and jobs have been hit severely by the recession, which owing to Labour’s failure to support business and address welfare dependency, lasted longer in the UK than anywhere else in the G20”

A quote from the German polymath Frederich Schiller has been doing the rounds since the banking crisis – ‘against stupidity the gods themselves contend in vain’. You can see why. I’m tempted to leave it there but I will say this:

In terms of the fall in output, it might be fair to argue that the recession lasted longer in the UK than anywhere else in the G20. However, if this statement is left to stand unchallenged, the inference is that the recession was somehow worse in the UK. This is manifestly untrue: the rise in unemployment in the US was much more rapid, steep and enduring (though this is likely to change as a result of ConDem policy). The impact in the Eurozone periphery was, and is, obviously much, much worse than what happened in the UK.

That unemployment didn’t rise to the levels anticipated given the fall in output is attributable to the policy response from the Labour Government which introduced (wholly inadequate – this is beginning to read as a defence of Labour’s economic record. It isn’t ) fiscal stimulus and active labour market interventions (Future Jobs Fund) to help people back into work. This is why growth was strong in the first half of 2010. This is why unemployment was falling. This is why the deficit fell by over £20bn between the December 2009 PBR and March 2010 Budget.

I’m baffled about the link between the ‘failure to address welfare dependency’ and the length of the recession. The recession hit harder in the UK because we were over-reliant on financial services and property sectors. End of.

Oh dear, I’ve spent all this time and we’re still on the first paragraph. Time to press on. The Tories next turn their fire on the SNP Government…

“it has not delivered fully on its pro-business rhetoric and it has failed to see the need to take some tough, “big picture” decisions, such as the need to call time on unsustainable borrowing and rebalance our economy from the public to the private sector”.

The Scottish Government doesn’t borrow. Therefore, I have to assume it’s an attack on the Scottish Government’s record in opposing ConDem cuts. If so, it reflects, once again, the nakedly ideological position of the Tories: the private sector will necessarily grow because the public sector is being cut. The evidence to support this proposition is non-existent.

The manifesto then goes on to laud the measures – cuts in corporation tax etc – being undertaken at UK level. The STUC is currently developing a paper in response to the Budget and will return to these issues at a later date. Let’s focus on the Scottish issues. Here’s a belter:

‘and in the most recent Budget, we secured £26m of stimulus for business’

Wow. Stimulus. They actually used the word. Not support. Not assistance. Stimulus. Is Annabel Goldie a closet Keynesian? Surely not…

The next section is on supporting enterprise and is concerned almost exclusively with the need to increase business start-ups. Scotland’s low rate of entrepreneurial activity is routinely cited (by all the main parties) as a primary reason for comparatively weak economic performance (if indeed you accept that our performance is comparatively weak).

This is, not to put too fine a point on it, nonsense. I’m with Ha-Joon Chang, the renowned development economist who argues,

“if effective entreprenuership ever was a purely individual thing, it has stopped being so at least for the last century. The collective ability to build and manage effective organizations and institutions is now far more important than the drives or even the talents of a nation’s individual members in determining its prosperity”.

Quite. Spending a lot of money in order to boast that the rate of business start ups has improved is utterly pointless. Building world leading, innovative, well managed organizations is much more important but also much more difficult. And the urge to pander to the small business community is something Scotland’s politicians appear unable to resist.

Interesting also that the Tories will ‘place a new duty to promote economic growth on all public agencies and require them to report on the positive – and negative – impacts that the decisions they have taken have had on economic growth’. This is plain daft on a number of levels: how can such an assessment be credible – particularly in the short-term, or even over the life of a single Parliament? The majority of growth enhancing investments made by, for instance, Scottish Enterprise are long-term. Note that the Tories are arguing that agencies must report on the impacts decisions ‘have had’ on economic growth; not ‘will have’.

Next up, we have all the usual nonsense on business rates – again, something that all parties are guilty of.

‘we will legislate to ensure that the main Business Rate poundage can be no higher than in England

Well, to be fair, the Tories didn’t support devolution so I suppose the have the right to mock it. Suffice to say that if any of the main parties believe that Scottish businesses are being handed a genuine and sustainable advantage by cutting business rates they are living in cloud cuckoo land. The SNP’s Small Business Bonus Scheme has wasted hundreds of millions of pounds. It is not tied in any way, shape or form to job related investment. It is money that could have been invested much more productively elsewhere (Scottish Investment Bank, enterprise networks, infrastructure, education etc).

Unsurprisingly, the Tackling Red Tape section is prominent, introduced in big bold letters no doubt signaling the Tories robust approach on what they regard – in the face of all credible, international evidence – to be the biggest issue facing the Scottish economy.

The STUC has rebutted enduring myths around ‘red tape’ on many occasions over the years; most recently in our 2011 Budget Submission. I will not repeat them here.

But I can’t help being a little excited by the Tories strong – nay, overwhelming – support for the Regulatory Review Group:

  • We will retain the RRG
  • We will allow any voluntary, private or public sector organisatiob to refer regulations which are unduly burdensome to the RRG;
  • We will take forward the RRG recommendation….
  • We will strengthen Business and Regulatory Impact Assessments (overseen by RRG) etc etc
Guess what? I’m on the RRG! The Tories love me! They want to hand me more power! Or maybe they’ll kick me off…

The serious point is that the RRG will need much more resource if it is to undertake additional responsibilities. Will these resources be forthcoming at a time of austerity? And it is heartening to note that the Scottish Tories do not seem to be attracted to the risible ‘one-in, one-out’ approach to regulation being pursued by the coalition.

On Planning, the Tories propose to establish a ‘business led review’ of the system in order to raise economic growth. It is not immediately clear to me why business should lead this process; a process which is very likely to come back to bite the Tories for it is their members who are often at the nimby vanguard. Who can forget Murdo Fraser MSP striding the moors in his big green wellies whilst campaigning against Beauly-Denny?

The section on infrastructure is predictable: bring back PPP and prioritise projects of the greatest economic benefit. The proposal to tender the Calmac and Northlink routes in smaller bundles is 1) plain daft to anyone who has thought about the issues for more than 5 minutes 2) detrimental to the interests of users, workers and the communities they serve and 3) potentially very dangerous.

On Scottish Water they manage to avoid using the ‘p’ word or even the ‘m’ word (mutualisation). Instead they commit to Scottish Water becoming a ‘publicly owned Public Interest Company, free from Government control’. Get your head round that if you can. Are the Tories conceding public ownership? Or are they simply setting up an unsustainable organisation in order to privatize somewhere down the line. Voters – you decide….

Having lost the will to live, I’ll leave the public sector reform stuff to others.

Stephen Boyd - STUC