Zombie theory stalks the railways

Justine Greening, Secretary of State for Transport, has announced that the government plans to accept many of the recommendations of Sir Roy McNulty’s report on the railways and that she wants to see efficiency savings of £3.5 billion per annum.   Much of the media coverage has been dominated by the proposed introduction of smart card ticketing and job cuts.  Unions fear that 12,000 jobs may go.

There is clearly a problem.  As McNulty puts it in the forward to the report,

“However, there is widespread recognition that the industry has problems in terms of efficiency and costs.  Unit costs per passenger kilometer have not improved since the mid 1990s.”

Hmmm.  The ‘mid 1990s’ was when the railways were privatised (progressively between 1994 and 1997 in fact).   Yet a business with a high but fixed cost base should see efficiency soar when passenger numbers increase.  And passenger numbers have gone through the roof as long-suffering travellers know - up by about two-thirds over the same period according to the report.  Clearly something has gone badly wrong.

McNulty goes on to list some of the causes,

“The causes of GB rail’s excessively high costs are many and complex.  The Study was asked to examine “barriers to efficiency” and we have identified that among the principal barriers are fragmentation of structures and interfaces, the ways in which the role of Government and industry have evolved , ineffective and misaligned incentives, a franchising system that does not encourage cost reductions sufficiently, management approaches that fall short of best-practice in a number of areas that are key cost drivers, and a railway culture which is not conductive to the partnership and continuous improvement approaches required for effective cost reduction”.

In other words its structure too fragmented and byzantine to work properly.  Someone forgot the KISS rule.

On R4′s Today Sir Roy said that British passengers are paying about 30% more than their counterparts in other countries.  John Humphrys suggested that the ‘big opportunity’ is to reunite the fragmented parts and rail expert Christian Wolmar agreed adding that since privatisation public subsidies have increased from about £1.5 billion to £4 billion in real terms – i.e. over and above inflation.  Elsewhere, Bob Crow of RMT contributed the fascinating factoid that Network rail has 300 solicitors who spend their time suing the Train Operating Companies (TOCs) and the TOCs have another 300 who spend their time responding.  It’s a hell of a way to run a railway.

So, the government’s solution is to ignore the elephant in the room – that the structure of the railways is all wrong – and go for a combination of fare increases (disguised as smart ticketing) and substantial job cuts (even allowing that the unions may be a scaremongering a little).  Why would Ms Greening do that?  She could just blame it all on Labour as usual.

The answer is that too many in government still believe the neoliberal nonsense that markets have god-like powers and magically always deliver optimal solutions despite massive evidence to the contrary and a theoretical base that can’t stand up to scrutiny.  They are locked into a failed paradigm by bad theory and cemented in for good measure by the vested interests that are doing very nicely from the arrangement.  That 30% excess of costs is someone’s income and is quite big enough for some to be spared for a generous contribution to party funds.

As for hopes that a re-structuring of incentives and the like within the existing structure will solve the railway’s problems – forget it.  These are features of the system, not mere bugs.  Like all centrally mandated targets they will always be gamed by the industry players for their own advantage; if the incentives are changed the game will simply continue under the new rules.

 

The Ministry of Justice courts trouble with translations

The military would describe the UK’s current governance as a ‘target-rich environment’ with screw-ups following each other at a positively dizzying rate.   A recent Channel 4 News report on the Court Translation Service was a doozy.  Seeking to save around £18 million per year the Ministry of Justice has given a £300 million contract to provide all translation services for England and Wales to the tiny £7 million company of a failed Dragon’s Den entrepreneur with no apparent evidence that the firm could handle the demand.  And, surprise, surprise, it turns out that they can’t - leaving cases delayed, courts in chaos and costs mounting rapidly.

The way this has traditionally worked is that when a court needs an interpreter they would find one through the National Register of Public Service interpreters which currently has around 2,300 properly qualified interpreters on its list.  And it’s a system that works very well.  As it happens a good friend of ours did regular stints of court work until she moved overseas a couple of years ago and she had told us that middlemen were attempting to move in, sign ‘exclusive’ deals and, in return, help themselves to a juicy cut of the fees for little effort on their part but at the expense of the translators who, naturally enough, are not thrilled.  Most are refusing to work with the new system and ALS, the company involved, is accused of providing unqualified interpreters.

There is nothing to like about the MOJ’s bright idea of creating a supplier monopoly making its money by screwing the talent.  How many would finish up on income support of some sort offsetting any savings?   And do the MoJ really imagine that if a monopoly got established it wouldn’t turn round in a few years and demand higher fees to further fatten its bottom line?

All credit to Gavin Wheeldon, the entrepreneur concerned for being an excellent salesman and, in fairness also to the Dragons who agreed that he would do very well but baulked at the high price he was asking.  He eventually got his price by selling out to Capita.

Which raises the question of what should be done to fix the mess.

Well, Capita is a big company with deep pockets that has got rich by feeding at the outsourcing trough and they should not be allowed to run away with the idea that contracting with government is a one way bet where profits are taken and costs are walked away from.  In other words they should be on the hook for ALL the losses, both the costs of delays and the loss of promised savings.  Does the contract say that is what will happen – and if not why not?  I don’t know but Capita depends for a very large part of its revenues on government.  In such circumstances the customer is ALWAYS right irrespective of whatever the contract might say.

I’m not holding my breath but I live in hope.

 

Cameron’s 2% nuclear deal

The Prime Minister has just been to Paris to sign a deal with France to, as the BBC puts it, “strengthen co-operation in the development of civil nuclear energy” with much happy talk of, “our shared commitment to the future of civil nuclear power, setting out a shared long-term vision of safe, secure, sustainable and affordable energy, that supports growth and helps to deliver our emission reductions targets“.

Translation: we have agreed a deal to buy a number of nuclear reactors from the French nuclear company Areva.

And this is a BIG deal.  According to Radio 4′s Today, the first four reactors will cost a total of £20 billion and will create 1,500 UK jobs.

But enquire a little and it doesn’t start to look too clever.  Interviewed by Evan Davis on Today, the boss of ‘New Build’ for Areva in the UK, was gushing about the potential, “the UK is the most exciting new build opportunity in Europe; it’s one of the most exciting in the world….”   He explained (above link) that, “Rolls-Royce will become our prime manufacturing partner to supply some £100m of key critical components of the reactor for each EPR [next generation nuclear power plant] that’s constructed in the UK“.   Apparently Rolls Royce will build a factory in Rotherham to fill orders flowing from the deal and this will include supplying equipment for orders in other countries.

Uh!

Do the numbers.  Rolls Royce is to get £100 million out of £5 billion per reactor – that’s just 2%.  Other companies will be involved but the Rolls Royce deal alone accounts for 80% of the £500 million identified so far.  And, according to their website, Rolls Royce already supplies “safety-critical instrumentation and control systems to all 58 operating nuclear power facilities in France …”  so it’s not clear how much of this work is actually extra.

And yet we have it straight from Areva’s senior man that this is ”the one of the most exciting [opportunities] in the world“.  With that much buying power 2%, is a truly pathetic result.  The percentage will inevitably rise during the construction phase but much of that will be the modern equivalent of navvies.   The strong implication is that most of the high-tech value-added bits are coming from France.

This looks very much like a replay of the trains affair where a £1.4 billion contract was awarded to Siemens with one crucial difference.   This time as a result of years of dithering and confusion in Whitehall there is no domestic competitor;  we built the world’s first commercial reactor but no longer have a fully capable civil nuclear supply industry because the UK simply doesn’t provide a suitable ‘habitat’ for complex, technology companies headquartered here (Rolls Royce is a very rare exception).

£20 billion (and that’s just for the first phase of a bigger programme) is enough to make a big difference to the economy as any Keynesians would point out – indeed that new energy investment would do just that has been the constant refrain from governments over many years (although they normally prefer to talk more of renewables than nuclear).   The trouble is that the economic boost in this case is going largely to France.

Politicians have been grandstanding about how the latest technology was going to ‘jump start the economy’ since Harold Wilson’s ”white heat of technology” speech (and probably long before that) but we are slowly and steadily going backwards.   It’s a good idea in principle but they just don’t know how to do it.

And yet the how of it is perfectly discoverable; any number of Asian countries, starting with Japan and later South Korea, Taiwan and others have worked out how to do it.   We could too – I don’t even think it’s terribly difficult – but first we would have to start asking the right questions and as far as I can see no political party is yet doing that.  Why not?

 

 

Cameron the car czar

David Cameron is, it seems, to take the lead in tightening the rules for insurance claims - particularly those relating to whiplash which now account for 1,500 claims a day, cost the industry £2 billion per year and the average motorist £90 per year in higher premiums.

That there is a problem is clear – claims are increasing even as accidents are falling – but does this really require the personal intervention of the Prime Minister?  Has he no other more important things to worry about?

This reminds me of a report from Russia last year on how things very often simply didn’t happen unless Putin took a personal interest.  The story focussed on a remote village that was burnt down when severe drought caused forest fires to burn out of control; somehow Putin got involved, kicked butt and made things happen rebuilding-wise.  Which was great for the village concerned and made for great PR for Putin-the-saviour but did nothing for the scores of other communities similarly affected.

That Putin runs Russia in the style of the czars is perhaps understandable (although it’s not going down too well with educated younger Russians).  But Cameron?  Does he really think this managment strategy has a cat-in-hell’s chance of working in a country and economy as complex as Britain’s?  Surely not.  And if he does, we are in even worse trouble than I thought.

£2 billion overall, £90 per motorist is a HUGE amount of money - does a problem really have to be this big before it gets sorted rather than just festering?  As it happens motor insurance provides another instance of a situation that needs intervention; uninsured drivers.  They cost each motorist an average of £30 per year (this figure from memory).  Goodness knows what the extra cost to the taxpayer is for medical bills and the like.  I once sat in (as an observer) on a magistrates court where an 18 year old was charged with driving without insurance.  He had been driving his friend’s father’s car with permission but everyone involved simply forgot that he wasn’t a named driver and for this dastardly act they threw the book at him.

And yet there is a perfectly good solution to this problem.  Some countries require every car on the road to have compulsory third party insurance that covers all drivers (even thieves and drunks).   It is evidenced by an ‘insurance disk’ like the tax disk which comes with every motor insurance policy.  Every policeman and traffic warden can enforce it and not having one is an instant towing offence.  The proportion of uninsured cars on the road?  Approximately 0.001%.

So there are better ways of doing things which we can copy from elsewhere or invent ourselves but it doesn’t seem to be happening – at least not on anything like the required scale – and that is a problem.  Unnecessarily expensive car insurance we could live with if that were the only problem.  But, of course, it isn’t.

Power should be devolved to junior ministers and their civil servants (and where appropriate to local government) and with it should go the expectation that the devolved power will be properly and wisely used – or else!  What we actually have is system where middle level executives (and this now apparently extends to junior ministers) are so snared in a complex web of targets handed down form on high that they can no longer take the initiative unless the boss takes an interest.

Selling the family silver – let’s have reciprocity

China’s sovereign wealth fund has bought a stake of nearly 9% in Thames Water and Chancellor George Osborne is pleased about it, boasting that, “ It is a vote of confidence in Britain as a place to invest and do business.”   I would describe it more as selling the family silver.

Infrastructure companies are made to measure for ‘widows and orphans’; they offer investors relatively stable income streams over many years and are very unlikely to be wiped out by technological change as Kodak was earlier this week.   All of which makes them ideal investments for pension funds which must fund their long-term liabilities to pensioners with suitable investments.   With interest rates at record lows the relatively stable income from infrastructure companies is more than ever needed to pay pensions.  Something is very wrong if we have to go half way round the world to find investors; I thought the City was supposed to be the world capital of, err, capital!

In a well run world people in their peak earning years would build up a pot of savings, either as individuals or through a company pension scheme.  Then, after their retirement, they would draw down their savings leaving the next generation in turn as the capital providers for industry giving them in turn a pension to look forward to.

But this deal breaks the circle.  The next generation will now have to work twice as hard – first to earn their way in the world and second to pay the dividends that are going offshore.   This doesn’t work unless we see a step change in the size and competitiveness of British industry that was last world-beating (with honourable exceptions) in about 1850.  Unfortunately, there is no sign of that changing anytime soon.

For this and other reasons most countries would not sell their basic infrastructure off.  We do because, in the infinite wisdom of the market fundamentalists, there should be no borders to the free flow of capital.  That’s an argument for another day; suffice to say for now that, even if the fundamentalists are 100% correct, most others are not playing by the same rules nor is there any incentive for them to do so.   Can you imagine, say, Centrica (the company behind British Gas) being allowed to become the dominant gas supplier in France in the way EdF has been allowed to move into electricity in Britain?   At the very least we should insist on reciprocity; companies from another country operating in sector X should be free to invest here only if UK firms operating in sector X could do the opposite deal and acquire comparable assets in that country.  That simple rule would go a long way to levelling the playing field and no-one could argue that it wasn’t entirely fair.

 

Grandmother trashes Inspectorate of Constabulary’s mad, bad plan

Thank heavens for people like Hackney resident and grandmother Pauline Pearce.   If you didn’t see her interviewed on Channel 4 News last night head over there and watch this three minute video clip of her demolishing the Inspectorate of Constabulary’s mad and bad proposal that rubber bullets, water cannon and even live rounds should be used on the streets of London in the event that there is another outbreak of riots.

As she says it was guns that caused the whole problem in the first place.  She asks, “What happens when they start shooting the wrong people?“

Quite so.   Effective policing can only be done with the consent of the community; live rounds are not the way to win hearts and minds.

 

 

 

 

 

 

High branches should be breezy ones

I for one welcome the High Pay Commission’s new report looking at the quite extraordinary remuneration enjoyed by UK executives.  For Directors of FTSE 100 companies pay soared by an astonishing 49% over the last year but just 2.7% for the average employee even as the companies involved have mainly delivered distinctly pedestrian results.  Click here for the report and here for a BBC story).

The traditional justification is that remuneration has to be “internationally competitive” to attract the best talent but this is a theory constructed out of wishful thinking; the notion that there is a liquid market for chief executives is pure self-serving fantasy.  As the High Pay Commission itself notes the importance of global mobility is largely a myth and that, “only one successful FTSE chief executive has been poached in the last five years – and even this person was poached by a British company“.

My own experience leads me to believe that most people can only have one major goal – money or results but not both – after I had the doubtful privilege of working for a chief executive who was transparently only interested in himself.  Under his ‘stewardship’ the company could have gone to hell and would have done repeatedly so were it not for the work of a handful of good people who averted the worst outcomes his negligence might have caused.  At another time I worked in a company with a chief executive who was quite simply out of his depth; every time things got sticky (as they periodically did) he would find it necessary to take an extended tour of our international operations leaving others to sort things out.  Yet he still drew an immense salary and decorated his office with imported handmade wallpaper.  His talent was not executive genius but knowing the right people to get himself appointed.  Plus ça change!

Anecdotes do not aggregate to data, but it is surely significant that, co-incident with the HPC’s report, we get a damming leak on England’s poor performance in the Rugby World Cup.   According to the BBC, “A number of England’s World Cup players were “more focused on money than getting the rugby right“.   Exactly my point!

The bottom line is that many executives are getting paid too much and delivering too little which is perhaps inevitable when they sit in judgement on their own rewards.   I have no objection to high pay per se when it is earned (Steve Jobs for instance) but the quid pro quo for sitting on a high branch should be that it’s a breezy one and easy to get blown off.  It’s time the ground rules were changed to bring order to this non-market and the HPC has some good suggestions to build on.

 

Crime decriminalised

What have the Occupy protesters got to complain about?  Why don’t they just go home and leave things to the properly elected politicians?

Well, it turns out that they have a point.  As a new report shows, despite an epidemic of financial crime federal prosecutions in the US have fallen to under half their level of a decade ago.   The downward trend became firmly established in the presidency of G W Bush and has continued under Obama. The chart shows federal prosecutions each year for the last two decades and four presidents.

The FBI warned as long ago as 2002 that an epidemic of financial fraud was building yet nothing was done in the face of willful blindness on the part of bank executives, regulators and politicians.    Policing and regulation (which in this context are much the same thing) completely failed leading to the wave of subprime fraud which eventually broke in 2007 precipitating the world into Depression.

But the subprime meltdown would not have been nearly as serious as it was unless the system was already in a fragile state because so many banks and other institutions had long been exploiting the near absence of any regulation to make hay in ways that history shows inevitably lead to a meltdown.  So subprime was only the trigger.  Dozy regulators are one thing; remaining fast asleep after 2007 is quite another yet, as the chart shows, that’s exactly what has happened; prosecutions have fallen because, whatever the law say (and it says plenty) there had been a de facto decision to decriminalise … well, crime.

Obama came to power amid much hope that he would take control and sort things out.  But nothing; he reappointed Bush’s economic team and did nothing to prosecute offenders despite abundant evidence.  Which is to say that he, and his appointees like Attorney General Eric Holder have made being blind a matter of deliberate policy.   Obama might have chosen to clean out the frauds saying of the inevitable reaction, “I welcome their hatred” as FDR, who understood the score, said when faced with epidemic levels of fraud in the Great Depression.  Instead he chose to try to reconstruct the economy with the criminals in place – a policy that has failed.

Not surprisingly the country is seething and Occupy is the response.

Fortunately the situation is nowhere near as bad in the UK  but there is no room for complacency either.  Almost all the bailout has gone to the bankers and very little to the real economy – a point which last night’s Question Time audience clearly understood.  With the bankers likely to need another bailout very soon, the politics of this are going to get interesting; any party on the wrong side of events is going to be history.

HSE: stealth tax and bad regulation coming (and forget the promised moratorium)

Few government agencies are as necessary as the HSE – and few create so much annoyance with fatuous interventions.  Clearly, there is a tricky balance to be struck but unfortunately the government’s latest proposal is heading in the wrong direction.  A “fee for intervention” proposal is currently out for consultation which closes on the 14th October.  (I was unaware of it until I read a press report).

Basically, the proposal is to reduce the number of health and safety inspections by about a third – 11,000 per annum – as “part of a package of measures to change the culture…” and it will also start recovering its costs where it intervenes.  The justification for all this seems perfectly reasonable at first sight.  In the words of the consultation document,

… it is reasonable that duty holders that are found to be in serious material breach in standards – rather than the taxpayer – should bear the related costs incurred by the regulator in helping them put things right. A cost recovery principle will provide a deterrent to those who would otherwise fail to meet their obligations and provide a level playing field for those who do.

In reality it is riddled with problems.  For a start it’s not at all clear how these proposals will “change the culture”.  They say they are going to target higher risk industries and through the better use of “intelligence”.   These are admirable aims but are about better management, not changing culture.  What it’s really about is part funding the HSE through a swingeing increase in fines described in true Orwellian terms as “fees”.

Then there’s the question of the moratorium on new domestic regulations for small businesses announced only this last spring?   This is easily dealt with,

“Ministers have confirmed that the moratorium will not apply to these proposals …”

So, they were just kidding about the moratorium then; I’m glad they told us.

And there is the trigger for and level of fines fees involved.  Where any ”material” (as opposed to merely “technical”) breach of health and safety law is found and followed up with a letter (or email)  the fees will apply, the amount depending on the complexity of the investigation.  The current hourly rate is £133 and it is estimated that a letter will typically result in a charge of £750 and an enforcement notice £1,500.  More complex cases will cost much more.

A “material” breach, the consultation document helpfully explains is, “When, in the opinion of the inspector, there has been a breach … which requires them to make a formal intervention [i.e. a letter].”  A ”technical” breach is one where again, in the opinion of the inspector, a formal intervention is not required.

This really is a jobsworth’s charter.  Inspectors will be able to hit any arbitrary targets then might be set for the number of interventions or the amount of revenue raised simply by adjusting their opinion.  Or maybe it will depend which side of bed they got out of in the morning.  Either way the strong temptation will be to pick off low hanging fruit, meaning in practice smaller businesses that are unlikely to have the management or financial resources to challenge an inspector’s opinion.

Or to put it another way, this is just setting up a system that creates potential for conflicts of interest in the HSE.  We need to know that action is taken when, and only when, there is genuine risk and not just because the HSE budget is under pressure.

(For the avoidance of doubt let me say clearly that I’m sure that 95% of inspectors are thoroughly professional in their approach but no-one should be put in a position where they face contradictory directives from their management.)

From the point of view of small business this represents yet another regulatory minefield – exactly the sort of thing that is so unpopular and with just cause.  The HSE only has to be expert in one field, the business in every field.

If the government were serious about changing the culture, especially among harder-to-reach small companies, it would use inspectors more as consultants, going into firms to help and advise and resorting to formal interventions only when the management is clearly dodging its responsibilities.  For the majority of companies that want to improve their health and safety this would be a practical and cost-effective way to to so.  However, under the “fee for intervention” system a company would have to be mad to ask the HSE for advice.

Government should be helping British firms cut their costs and improve their efficiency while doing the same for its own direct responsibilities (which have the same relationship to the economy as a whole as do head office costs to an individual firm).  Unfortunately, this proposal doesn’t do so; it merely shuffles costs off the government’s books and onto the private sector’s books; it is an HSE stealth tax that rearranges the financial deck chairs but achieves no net benefit for the economy.  In fact it will almost certainly increase costs for the economy as a whole.

And it won’t do anything for the standing of the HSE which is a pity because it has an important role to play.

What’s your narrative?

George Osborne got quite an ear bashing from Sarah Montague on Radio 4′s Today programme yesterday (starts at 2:10:00).   He had to stick to his guns to insist that getting the deficit under control must take priority while she repeatedly asked why the government did not have a more activist growth strategy – saying, “You have got to stimulate the economy somehow, you have got to get the economy growing“.   She seemed fixated on the importance of tax cuts to do this coming back to the point again and again, at one point asking, “As a Conservative, who must believe that tax cuts boost growth – and I presume you do …?”   The question tailed off into silence and, tellingly Osborne did not say ”yes, of course” although he later went on to affirm, although in a rather theological way, his belief in low taxes as a long run goal.

So, amazingly, it was the presenter pushing a particular policy while the Chancellor was more guarded and nuanced.

Sarah Montague’s simple faith that tax cuts will get the economy growing is shared by many Conservatives so maybe the Today programme has simply forgotten it’s duty to be impartial but I suspect that something a little more complicated is going on.   Perhaps, along with much of the rest of the population, some BBC presenters have unwittingly swallowed the neoliberal narrative that says that we should unshackle the market.  We should, they say, go easy on regulation and give firms and their bosses everything they want – including lower taxes.  And with it goes a threat; that if we don’t cut regulations and taxes, firms will flee the country for more benign locations taking their jobs with them.

As a narrative this works quite well; it offers a sufficiently joined up account of how things work to be credible at first sight and neatly sidesteps some problems.  Like, for example, that governments have worked hard to make it a self-fulfilling prophecy by making capital as elusive and globalised as possible by promoting London and various island outposts of Empire as tax havens while steadily shifting the tax burden from capital onto labour.

As a way of running the country it has been a disaster; given the huge pools of capital accumulated in recent years, the neoliberal narrative implies that there should by now be a tidal wave of money pouring into productive investments in the real economy but there isn’t.  Money stays in the financial casino or is cashed out into high living and country estates.  Neoliberals might argue that this is because we haven’t gone far enough down their road, but just how bad does it have to get for the majority before they’re satisfied?  What they are actually promoting is a race to the bottom.

We need an alternative narrative, a different story of how things work.  I suggest it might go as follows.

Companies are just like people; they have great potential but must live within a framework of rules to realise their potential and these rules must reward good behaviour and punish bad behaviour.  With good rules they will become responsible (corporate) citizens.  With bad or poor rules they are at great individual risk of going off the rails.  Some will certainly do just that; the bad will then drive out the good.  In particular, and again just like real people, companies tend to bunk off and take the easiest course – the path of least resistance – so the rules must work to keep them on the straight and narrow, focussed on activities that support public and community goals.

Note that this is very different from the regime we have had in recent years.  Then “light touch” regulation (meaning usually none) meant that firms could and did take the easiest route and in practice that meant financial speculation, casino capitalism, asset stripping and, increasingly, outright criminality.   In short, the neoliberal narrative is largely responsible for the mess the real economy is in and it’s time we changed it for a better one.