David Butler « Labour Uncut

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If Ed is serious about banking reform, its a British investment bank that is needed

22/01/2014, 02:18:11 PM

by David Butler

The case for banking reform is one that, on the centre-left, does not require extensive repeating. The banks were central to the crash and have not been seen to have redeemed themselves. In particular, lending to small and medium enterprises has fallen substantially in the post-crash environment and was not particularly healthy pre-crash. It is into this sea which the good ship One Nation Labour (formerly known as Responsible Capitalism), under her captain Ed Miliband, sailed.

Small and medium-sized enterprises suffer from an inadequate supply of finance. The impact of this was captured in IPPR’s Investing for the Future report. SMEs are usually reliant on loan-funding and are unable to sell bonds or access other sources of capital available to bigger businesses. The report contends that banks have gradually been switching their activities towards loans and investment that offer bigger yields and more immediate profits, which has squeezed loan-funding to SMEs. Due to information asymmetry, banks have used a ‘tick box’ approach for making decisions on loan funding, which has result in a further structural shortage as many potentially good SMEs are shut up of the one-size-fits-all criteria.

Current government schemes to encourage SME lending do not appear to be successful. In the footnotes of the IPPR report, the authors quote an article in the Financial Times which claims that of the £100 billion in low-cost capital created by the government, banks plan to use up to £80 billion to replace existing loans backed by market-price capital. It is clear that simply giving cheap capital to private sector banks will not help. This has been matched by the continue fall in lending to SMEs captured by recent Bank of England figures. This lending problem is a constraint on future prosperity and do nothing to relieve the cost of living crisis. A new approach is needed. Ed Miliband believes that more competition will provide the answer.

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Labour needs to get serious about tackling government waste

08/01/2014, 01:30:38 PM

by David Butler

With memories of seasonal excess still fresh in the mind, it is perhaps a good time to talk about waste. Waste reduction (or efficiency) is too often given as an easy means of freeing up funds; rarely is life so simple. However, there are opportunities for savings, both public and private, and a number of ancillary benefits available from a good waste reduction strategy.

In their pre-Christmas report on the Government Accounts 2011-12, the National Audit Office highlighted over £20bn worth of fraud losses in the public sector with £13bn in write-offs due to fraud and error. This, combined with the long-term funding pressures on the government coffers put a premium on waste and fraud minimisation.

One means of reducing fraud and waste is to improve the whistleblowing culture. At a recent meeting of the Communities and Local Government Committee, Head of Counter Fraud at the Audit Commission, Alan Bryce told MPs that fraud prevention relied on whistleblowers. Last June, the law was reformed in the Enterprise and Regulatory Reform Act 2013 to give protection to workers judged to reasonably believe that exposures are in the public interest. While this protection is welcome, the lack of definition and guidance over the exact meaning of public interests means that it will be left to individual employment tribunals. A government interested in fostering a whistleblowing culture should offer up clearer guidelines in consultation with trade unions, employers and legal experts. In public procurement, central and local government should ensure that whistleblower protection and clear channels for highlighting issues are built into contracts. Changing a cultural norm is not simple, but further legal changes and smart public procurement are a good beginning.

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Sunday review on Thursday: The not-the-London-Labour-mayor hustings

28/11/2013, 01:14:49 PM

by David Butler

When is a husting not a husting? When it is a Progress Campaign for a Labour Majority event on winning in London. That all the invited panellists, including the curiously absent Sadiq Khan, are considered potential nominees for Mayor of London was just pure coincidence.

The event was less a tale of two Londons (or One London Labour or whatever today’s vogue is) but of two de Blasios. David Lammy and Diane Abbott sought this mantle both through reference to New York’s Mayor-elect and through the language and policies on offer. Lammy provide a toned down version of de Blasio’s message, whilst Abbott raised the rhetorical and policy stakes, offering a clear left-populist platform. This, and her potential support from the remnants of Ken’s old machine, makes her a serious contender within a party and electorate to the left of the national norm. Even Andrew Adonis and Tessa Jowell, neither of whom particularly fit the de Blasio mould, referenced “two cities” and “One London” respectively.

However, in many ways, it felt like a London housing policy seminar that happened to have a different title. Both Abbott and Lammy announced support rent regulation, albeit with Lammy obfuscating by calling for “fair rents”. Lammy subsequently redeemed himself with an eminently sensible proposal to build housing on the Green Belt. Jowell warned about the impact of the mansion tax on “asset rich but cash poor” families, a rather surprising move in the circumstances; worrying about those who do well out Britain’s over-inflated housing market should not be high up her priority list. As expected, Adonis had the more innovative ideas proposing to explore shared equity schemes and a “housing bank” to take a stake in future developments in order to prevent land banking.

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Chile not Venezuela shows the way for the left in Latin America

20/11/2013, 05:21:12 PM

by David Butler

It is a rather remarkable sign of a country’s recovery that the daughter of a victim of the former military regime and the daughter of a member of the former military regime can face off against each other in a peace, fair and free election.

So it was in Chile on Sunday. As the votes were came in, the centre-left candidate for president, former president Michele Bachelet was brought to be brink of victory with 47% of the vote. She will face Evelyn Matthei, who got 25%, in the second round but this is little more than a formality at this stage. Her Nueva Mayoria (New Majority) coalition have won 65 seats in the lower house (with 95% of the vote counted) on the brink of the four-sevenths majority need to enact major policy reforms. This electoral victory and the progress that occurred under twenty years of centre-left rule by Concertacion are worth celebrating.

Chile’s GDP per capita was both higher and grew quicker than the Latin American average for the most of the period of between 1990 and 2010. Obviously not all responsibility belongs to the centre-left government, but they proved themselves good stewards of the economy and invested in areas neglected by the Pinochet dictatorship. Chile was not badly affected the wave of recessions sweeping the world in the late 2000s, thanks to measures taken by Ms Bachelet.

The unemployment rate under Concertacion varied between 6 and 9% for most of the period. Whilst the recession saw a spike up to 11%, the rate has dropped rapidly to its current level of 6%. Inflation has generally remained within the central bank’s target range of 2-4%, ensuring that people enjoy price stability. Yet, there are challenges that remain: the weakness of physical infrastructure and the need for economic diversification away from the copper exports as a fuel of growth are headaches that need to be soothed in the medium-term.

As noted above, the Chilean economy is relatively dependent upon copper, which make up three-quarter of their exports. A sharp fall in the price in 2008 caused this sector to shrink in values. However, the centre-left government had invested in assets using revenues from the cooper boom in the early 2000s and were able to moderate the impact of the downturn. A truly counter-cycle fiscal policy almost unique amongst commodity exporting countries, according professor Jeffrey Frankel of Harvard university. This is has ensure that Chile’s public debt remains at a manageable 9.5% of GDP. Bachelet herself introduced a fiscal responsibility bill in 2006 to further enshrine principles on which this prudence was based. Despite this fiscal conservatism, the governments of Concertacion were able to raise spending on social security and education.

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If copying the German model is as the answer, Labour doesn’t understand the question

11/11/2013, 11:09:16 AM

by David Butler

Jonathan Wilson’s masterpiece on football tactics, Inverting The Pyramid, sets out how success on the pitch regularly came through great managers innovating with formations and strategies. But this success was often fleeting; Alf Ramsey’s “wingless wonders” quickly reached a nadir in failing to qualify for the 1974 World Cup. Other teams absorbed the successful strategies and modified them, sometimes completely overhauling them. This drove change in the game as teams sought new marginal advantages. Those who sought merely to directly copy and not innovate themselves were left trailing in the dust. This is the danger that deifying a single system brings, from football to economics, and why we should go beyond Germany in thinking about a new capitalism.

Germany acts as a lodestar for those in the vanguard of Milibandism. This is not a new phenomenon on the left; in a speech in 1980, Denis Healey praised the social market as a middle path between Bennism and free market right. For Will Hutton in the mid 1990s, it offered a post-Thatcherite path for Britain. Now, once again, Germany is supposed to point the way towards developing a “supply side of the left” and the transformation of Britain into a European-style social democracy.

Importing individual economic institutions is difficult enough, let alone copying large sets of institutions from a single economic model. In labour-management relations, for example, there are sizeable differences between our island home and the continent. Continental unions are traditionally less adversarial towards management and this enables more consensual institutions to flourish.

The historic conservatism of the labour movement towards their internal structures makes the prospect of Continental-style unionism a dim one. This is not a land without hope; USDAW and Community have been successful in gaining localised victories and engaging (often younger) new members.

Unite have attempted engagement through community organising and launching a credit union. Business too would have to modify its approach towards labour relations. One only needs to look at the behaviour of Ineos and Unite at Grangemouth to see that there is a long path to walk before Britain will achieve more cooperative labour-management relations.

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