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Saturday, 19 July 2008

It's time to cut this Gordian Knot

There are times when I imagine that Mervyn Peake was not the tortured author of the Titus books but the management consultant who designed large parts of our government system. The tottering structure is so complex that the wails of 'nothing can be cut' can almost be believed. The quangos find cushy board jobs for 18,500 Labour appointees, employ a further 95,000 staff and cost about £37bn a year. Looking at the list of NDPBs in isolation one can almost believe them to be indispensable.

So, let's just take a quick look at just one area of government regulation and intervention - food. I'm no expert in this area, and this tour d'horizon is the result of a quick skim through the bodies that come most readily to mind.

What do we absolutely need to do collectively? (i.e. that cannot be left to individuals, communities or the market) in relation to food? I'd suggest (a) food security issues at a national level - that we can grow, harvest or import enough food to feed the population (b) adulteration - that consumers are reasonably protected from being poisoned, or sold bread made from sawdust rather than flour. And that's about it. Production, distribution and sale can be left to the market. So what are we actually being charged for by the State?

(1) The Food Standards Agency, current annual cost £135,680,000, describes its purpose as 'to protect the public's health and consumer interests in relation to food'

(2) In addition, each local authority employs Environmental Health Officers to inspect and licence premises preparing, storing, selling or serving food. Say 450 local authorities employing 6 EHOs each on this work at a per capita cost of say £45k including pension and employer's NI - £121,500,000

(3) DEFRA - The Department for the Environment, Food and Rural Affairs - is a big one. Its gross annual budget is £3,936,750,000, but only £2,225,760,000 is for the Whitehall department itself. Since they do water and litter as well as food, say 35% of this is food related; £779,016,000

(4) Food-related Quangos, Agencies and NDPBs:

- School Food Trust
- Agricultural Wages Board for England and Wales
- Agricultural Wages Committees for England x 15
- British Potato Council
- Food from Britain
- Gangmasters Licensing Authority
- Home Grown Cereals Authority
- Horticulture Development Council
- Meat and Livestock Commission
- Milk Development Council
- Sea Fish Industry Authority
- Wine Standards Board
- Advisory Committee on Organic Standards
- Advisory Committee on Packaging
- Advisory Committee on Pesticides
- Agricultural Dwelling House Advisory Committees x 18
- Animal Health and Welfare Strategy England Implementation Group
- Committee of Investigation for Great Britain
- Committee on Agricultural Valuation
- Consumers’ Committee for Great Britain under the Agriculture Marketing Act 1958
- Farm Animal Welfare Council
- Hill Farming Advisory Committee for England, Wales and Northern Ireland
- Independent Agricultural Appeals Panel
- Independent Scientific Group on Cattle TB
- Spongiform Encephalopathy Advisory Committee
- Agricultural Land Tribunals
- Commons Commissioners
- Dairy Produce Quota Tribunal
- Plant Varieties and Seeds Tribunal
- Alcohol Education and Research Council
- Committee on Carcinogenicity of Chemicals in Food, Consumer Products and the Environment
- Committee on Mutagenicity of Chemicals in Food, Consumer Products and the Environment
- Herbal Medicines Advisory Committee
- Scientific Advisory Committee on Nutrition
- Advisory Committee on Animal Feedstuffs
- Advisory Committee on Novel Foods and Processes
- Advisory Committee on Research
- Advisory Committee on the Microbiological Safety of Food
- Committee on Toxicity of Chemicals in Food, Consumer Products and the Environment
- Advisory Committee on Novel Foods and Processes (ACNFP)
- Expert Group on Vitamins and Minerals
- WRAP (minimisation of food waste)
- Marine & Fisheries Agency
- Rural Payments Agency
- Animal Health

The final four cost £456,000,000 a year. The others on a quick count come to about £330,000,000 a year.

(5) The Environment Agency, with a fairly wide brief but which regulates farming through regimes such as Nitrate Vulnerable Zone (NVZ) compliance, water abstraction licences, discharge consents and farm waste regulations, and which regulates aspects of fisheries and fishing, has an annual budget of £796,000,000. Say 35% of this is related to food and farming; £279,000,000.

(6) Finally, the costs of compliance. There's no easy way of calculating the direct costs of compliance, or the opportunity costs of over-regulation. So I'll have to leave these out. Also all the other indirect regulatory costs related to food production, distribution and sale such as planning and transport, energy and health, and all the other Guardianista costs of 'safe eating advisors', 'sugar reduction workers', 'fat education outreach officers' and the like.

Right, totting the above costs up, I get £2,101,196,000 a year. That's probably equivalent to 7% of the annual value of the food we buy at retail cost; exclude retailers' transport costs, premises costs and overheads and profit and it's got to be over 10% on food value alone. Add the costs of compliance and the true costs become terrifying.

Turn him to any cause of policy,
The Gordian Knot of it he will unloose,
Familiar as his garter

And it's time to cut this Gordian Knot. We can pick at it forever, but a bold stroke is needed. Cameron must be prepared to take the blade to not only the mess of food regulation but the whole mess of national regulation. And with the exception of the strategic national policy aspect, the answer is local.

Friday, 18 July 2008

Railway rolling stock. Ahem.

I'm not and nor have I ever been a train spotter, OK. Just wanted to make that clear. But there's something about railway rolling stock that has sparked the synapses since I was a lad. When I was 9 or 10 I had a friend whose dad had an old railway carriage in his garden; it was our playground, and an utterly fascinating object of desire.

When my Godson was at a particular age, it was his uncle who scoured Hamleys in search of obscure Thomas the Tank Engine models; there's nothing you can tell me about Edward, Gordon and the rest.

Anyway, a couple of years ago I bid unsuccessfully for a small marine diesel genny from RAMCO, who auction MoD surplus gear and have been on their mailing list since. Now, not many people know that the Royal Engineers have for many years run their own railway, and Engineer officers used to be trained in operating trains and tracks. For some years they have been running down their operations and flogging off their rolling stock. So when Jill Stringer of RAMCO emailed me yesterday advising me of a future auction and wondering if I was interested in buying
... rolling stock which will be sold ‘as seen’ & ‘where lying’ and is based over three sites as follows; Ashchurch, Bicester, Kineton. The rolling stock consists of standard & narrow gauge including: • Miniloks DH 60 & DH 140 • Railcar Flat Trailer • Mk1 Bullion Coach • Minilok Spares • Warflats • Narrow Gauge 4W Flats ....
Damn me if I didn't start wondering if I could get one in my small London garden, even though I don't actually know what any of them are. Ahem. Oh dear.

Electoral Commission website - party accounts

Until fairly recently, one could access the Electoral Commission's website, use the link to party accounts, be presented with a list of political parties, and view their annual accounts not only for the current year but for previous years.

You try it now. They've redesigned the website making it practically impossible to access this data. Go on, try it. Instead of a list of parties they've got a search box and a date range. Try a query on 'The Labour Party'. See, it's pants. It doesn't work. It's a mess.

How curious that that this amateur non-functioning website has been revised to make it impossible to access party accounts just at the time when Straw is drafting a bill for the State funding of the parties, when Labour are due to publish last year's accounts and reveal another spectacular drop in membership numbers.

OK, so here's a competition. A crisp tenner will be mailed to the first person to find the link on the Electoral Commission's website to Labour's 2007 annual accounts.

One for Newmania

Sometimes I can almost feel the heat of frustration from Croydon; like a water droplet hitting white-hot iron, Newmania's ire over inappropriate regulation explodes into superheated steam. Well, here's a neat little paper from Ralph Harris' IEA.
• Bureaucrats cannot 'correct' market failure, even if they wished to do so, because they lack the information to know what the outcome of the market process would have been had the so-called 'failure' not existed.
• Bureaucrats will act in their own best interests, taking courses of action that will lead to promotion and advancement. They are likely to wish to avoid scandal, thus becoming risk-averse, so they may regulate to reduce risks to a greater extent than consumers desire. They will also wish to increase the size of their regulatory bureau.
• Electors in general have no interest in being perfectly informed about political issues because the probability of an individual’s vote impacting on the result of an election is tiny.
• Because of this, there are information asymmetries between regulatory bureaus and those to whom they are ultimately accountable: electors. Thus electors are at a relative disadvantage when assessing the merits of proposed regulations.
• Where the benefits of government action are concentrated among particular voter groups, or institutions or companies, such groups have an incentive to lobby for increased regulatory protection. Where the cost of such regulation is dispersed among voters the losers will have
no incentive to lobby to oppose increased regulation because the expected cost of lobbying to the individual voter will be large relative to the expected benefit.
• Politicians will, other things being equal, respond to the preferences of the 'median voter' rather than act to create regulatory institutions that might address genuine problems of market failure.
A neat analysis that makes the FSA's mission claim look utterly asinine:
‘In meeting our objectives in a manner consistent with the principles of good regulation, we have adopted a regulatory approach based on correcting market failure...There are, however, numerous cases where unregulated financial markets will not achieve the best outcome due to some form of market failure, making action on our part necessary.’
Is that the hiss of exploding steam I hear?

Thursday, 17 July 2008

Funny old economy, isn't it?

Tolstoy remarked on the invariable pessimism of wounded soldiers coming off the battlefield; whichever way the battle was actually going, the lucid wounded are always convinced that for their side it is lost. Anatole Kaletsky suggests today that something of the sort is happening amongst our bankers:

To see what I mean consider the following example. In the old world before the arrival of “hyper-finance”, if a family wanted a £100,000 mortgage, they would simply go to the Halifax and borrow £100,000. Now consider what happens in the new financial world. The family would borrow £100,000 from Northern Rock, which would sell £100,000 of bonds to hedge funds, which buy these with £100,000 borrowed from Bear Stearns, their prime broker, which would raise this money by selling £100,000 of commercial paper to Citibank, which would then borrow £100,000 through the inter-bank market from Halifax.

So now the original £100,000 mortgage transaction has created £500,000 of new debts.

In principle, this entire chain of transactions could be squeezed, like a concertina, back to the original £100,000 transaction between the householder and Halifax, reducing the total amount of credit in the banking system by 80 per cent. This huge reduction in credit would do no great harm either to the homeowner or the ultimate lender, but eliminating all those intermediate transactions would devastate jobs and profits within the banks.

The upshot is that the main people suffering pay cuts and job losses in the present crisis are bankers, rather than industrial workers as in previous slowdowns.

The FT carries a story that foreign investment in London is booming, creating thousands of new jobs, though few of them are in the financial sectors. The FT also reports on the phenomenal growth of a global middle class:

It is also evident that poverty is dropping dramatically around the world. According to our calculations, the number of people living on incomes of less than $1,000 dollars a year ($2.75 a day) has already dropped significantly from about 50 per cent of the world’s population in the 1970s to 17 per cent by 2000. According to our numbers, it could be as low as 6 per cent by 2015. On the more familiar World Bank defin­ition of one dollar a day, the same dramatic shift is evident. Probably no more than 5 per cent of the world’s population now suffers this indignity. Of course, this is too much, but as long as the forces of globalisation continue we expect it to drop further.

It is important for everyone in the so-called developed world to be constantly aware that these powerful shifts in global wealth are good not only for the developing world, but for them too. If you take a look at a chart of recent US export growth, you may well think you are looking at the wrong data series. But you are not. US exports are indeed growing at close to 20 per cent and it is this that is stopping the housing and credit crunch from driving the US into a deep recession. Aspects of the same phenomenon can be seen in Japan, Germany and even the UK.

The new middle-class explosion is going to remain the market opportunity for us all, or certainly for those of us who are prepared to respond to the new realities.

It always seems the real answers are counter-intuitive, much to the astonishment of Guardian readers. Welfare causes poverty. Globalisation creates wealth amongst the world's poorest. You can't trust bankers with money.

And next time you get an irritating call from a Mumbai call centre, remember the young graduate on the other end will de-stress at the end of the day in their apartment with a bottle of Johnny Walker on their Laura Ashley sofa watching a Richard Curtis RomCom on dvd. When the last banker has hanged himself with the intestines of the last hedge fund manager, the world's new middle classes will still have a healthy appetite for the products of the world's most middle class nation - ours.

Tuesday, 15 July 2008

A good time to build

One of the very few things this government is doing right is pushing through the Crossrail Bill before the end of the current parliamentary session. This will allow the necessary land assembly to start, at a time when development land values are falling.

Similarly, as much as I wish Paris had won, for better or worse London will be hosting the Olympics in 2012 and I and other London ratepayers are underwriting the deal. So at a time when construction inflation amongst competing trades for infrastructure and civils projects has been running at 10%, it will be something of a relief to move into a competitive construction tender market that, the vanity and incompetence of designers aside, may allow these structures to be built for their budgeted costs.

The next few years will be an opportune time to catch up with flood defences, sewer replacements and all the other neglected national infrastructure projects that Labour has ignored whilst squandering billions of our income, our savings and the nation's savings on the barren and pointless consumption of the Client State.

The problem is, this idiot ex-Chancellor has shot his bolt; there's damn-all left in the cupboard.

Monday, 14 July 2008

Euphemism of the day: "looked after children"

Just going through a 2000 Cabinet Office report that contains the statistics that 0.5% of under 16s in the population as a whole are 'looked after' but that 50% of prisoners under 18 have been 'looked after'.

Thank God the State has neglected to 'look after' the other 99.5% of children under 16, or we wouldn't have room enough for all the prisons ...

A silly typo from reading from a wobbling laptop yesterday - it's 5% 'looked after' not 0.5%.

Bastardy and knife crime

At a time when 50% of new-born children in England and Wales are bastards, we are told that an epidemic of mugging, violence, intimidation and weapons crime is concentrated amongst teenagers, i.e. those born some 13 to 19 years ago, between 1989 and 1995. During this period bastardy was running at about half its present level. If there is a causal link between bastardy and teen-on-teen violence, we can expect gang violence and weapons crime to continue to rise over the next 20 years, and perhaps to spread to targets in the adult population. The UK is not alone in the rise in bastardy; both France and Norway have shown similar large increases. Although alcohol abuse has risen alarmingly amongst teens in both countries, there is no reported 'epidemic' of violent teen crime in either, so it's possible that other factors are also influencing teen violence in the UK.

The evidence of the effects on children of growing up without their biological fathers has been well documented by Civitas. They:
  • Are more likely to experience problems with sexual health
  • Are more likely to become teenage parents
  • Are more likely to offend
  • Are more likely to smoke
  • Are more likely to drink alcohol
  • Are more likely to take drugs
  • Are more likely to play truant from school
  • Are more likely to be excluded from school
  • Are more likely to leave school at 16
  • Are more likely to have adjustment problems
  • Are less likely to attain qualifications
  • Are more likely to experience unemployment
  • Are more likely to have low incomes
  • Are more likely be on income support
  • Are more likely to experience homelessness
  • Are more likely to be caught offending and go to jail
  • Are more likely to suffer from long term emotional and psychological problems
  • Are more likely to develop health problems
  • Tend to enter partnerships earlier and more often as a cohabitation
  • Are more likely to divorce or dissolve their cohabiting unions
  • Are more likely to have children outside marriage or outside any partnership
There is a direct link between bastardy and the absence of biological fathers from the 'family'; cohabiting unions are generally very short lived, with a median life of 2 to 3 years. Some cohabiting unions terminate in marriage, but most dissolve. Children born to cohabiting unions, bastards, are therefore also more likely to grow up without their biological fathers. Currently some 27% of all children and 67% of Afro-Caribbean children in the UK are growing up without their biological fathers.

In 1968 GPs were allowed to prescribe the pill to unmarried women for the first time, and from 1975 it became free. Abortion first became legal in 1969. From the mid 1970s therefore women had unprecedented control over their fertility and live-born offspring. Yet bastardy has risen from 9% to 50% between 1975 and 2008. Ermisch proposes that the greatest proportion of this rise is voluntary - women make a rational decision to bear a bastard. The proximate causes of this are complex, and Ermisch suggests a mixture of factors is responsible. I'll look at these in a later post.

It must be remembered that girls as well as boys are subject to the bullet-pointed effects listed above. This has important implications for courtship and marriage decisions. The product of a fatherless family tends to be a poor marriage prospect and suffers a lower probability of being sought as a prospective marriage partner by those not so disadvantaged. Whilst bearing a bastard lowers the marriage prospects of a woman from a family with both parents, it has little effect on the marriage prospects of a woman from a fatherless family herself, which are already low. Thus such women make rational choices based on their welfare; their position is better off under current social welfare provision with a bastard than without.

Those with a higher level of educational achievement, male or female, are more desirable objects of courtship with a view to marriage, and the numbers now entering further and higher education has raised the average age of marriage and raised also the age of childbearing amongst married women. This has the perverse effect that the childbearing 'window' for women likely to marry is a good ten years shorter than for women whose marriage prospects are poor. This also tends to raise the rate of bastardy overall.

The direct and indirect economic effects of bastardy are large and growing. Bastards command a disproportionate cost in policing, social work, probation, welfare services and payments, the criminal justice system, the health service, education and housing resources. The economic costs of bastardy are as important a debate as the economic costs of increased ageing. It is not a moral debate, but an economic one.

Sunday, 13 July 2008

Flint has the ghost of an idea

I live on a street with a Council house on it. Shock. Horror. Actually, you'd never know; it's no different to the rest of our Edwardian terrace, mellow red and yellow stock bricks, slate roof, classical Coadstone mullions to the window bays and entablature to the front door. In a street of fifty dwellings, forty-nine are privately owned and one is publicly owned. And it works. It was bought by the Council, I think, at some time in the 80s during the ideological battles being fought between the rainbow coalition in the town hall and Thatcher's government.

We have socialised the current tenants. When they first moved in, we had a night of loud music that ended abruptly when a dozen different calls to the Council's noise nuisance hotline brought the stereo squad screaming round. Unlike neighbours on a Council estate, we middle class homeowners are not backward in commanding regulatory resources to action. Then there was the time when their 12 year-old acquired a motorised scooter. After two passes down the street the lad was stopped six times by homeowners at their front gates warning gently that such behaviour was forbidden. And with the sticks came carrots; the smiles and nods of recognition to assure the tenants that it was nothing personal, just the way we want things. And now their windows are polished, their garden neat and tidy and they join the rest of the street in the mini orgy of Saturday morning car cleaning on the wide double-parked Edwardian tarmac.

So when housing minister Caroline Flint suggested that Councils could buy homes from struggling homeowners and rent them back to keep a roof over their heads I didn't recoil in horror. Even if the original homeowners move on and are replaced by 'normal' Council tenants, as long as the mix is suitably weighted it could work well.

What do I mean by suitably weighted? The mix between Council and private. I think 5% is about right, and 10% at the absolute limit of what can work. The current social housing targets of 35% or God help us 50% in new mixed developments are way, way too high and are already producing instant slums with bedsheets tacked up to the window frames in place of curtains and other signals that make the private flats unresaleable. If the middle classes are to socialise the underclass in this way we need to swamp them with our morals and values, and apply a social pressure too great to be resisted. So 5% then.

And this would be only the first phase. If we're using our taxes to buy these homes, we want a decent return from our assets and want to ensure they're maintained in good condition. The Council is too expensive, too remote and too anonymous to achieve this. On the other hand, the existing homeowners of the 300 - 400 dwellings that make up our little neighbourhood (and any local estate agent can tell you precisely the boundaries of all of these mini-wards) are ideally placed to do so. The local estate agent in the parade of shops could manage the lettings and collect the rents (thus helping hard-pressed estate agents to stay in business), and the rest of us could buy shares preferentially in the property assets, at a suitably attractive discount from current market value, shares that also be sold or traded in an open market. A sort of mini-Sid, for those of you that recall the British Gas privatisation. A little neighbourhood portfolio of 15 to 20 houses, originally funded with a mix of tax money and equity released from our own homes, but becoming self-sustaining and able to repay the 0% interest investment from the taxpayer, releasing further investment funds in a virtuous cycle of public investment.

Of course Flint wouldn't go nearly so far as this; her aim stops at the State owning these housing assets. It would take Cameron's team to give Flint's ghost of an idea its full effectiveness.