Lessons from London

According to the Wall Street Journal the US House of Representatives is to start posting expense reports online at the behest of Speaker Nancy Pelosi after the WSJ began publishing stories based on combing through the existing paper records.

It is not proposed that records from earlier years will be published online.  My guess is that quite a few congressmen have been reading reports from London and are keeping their fingers crossed that no-one digs into past expenses.

What a difference it would have made if Speaker Martin had opted for disclosure at an early stage.

However, it seems that the Senate still doesn’t ‘get it’ even though their expenses typically cost millions of dollars per year so there could still be fireworks from Washington.

Banana republic

Glenn Greenwald hits the bullseye with a superb post on Salon.com comparing the US now to Russia and Argentina during past crises.   His article is a must read by any standards.

He starts by quoting Desmond Lachman, a former IMF official, who describes his experience of Russia and Asia.

I still recall the shock I felt at a meeting in Russia’s dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia’s economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia’s economic czar at the time.

And.

I often heard Asian reformers such as Singapore’s Lee Kuan Yew or Japan’s Eisuke Sakakibara complain about how the incestuous relationship between governments and large Asian corporate conglomerates stymied real economic change.

Greenwald observes (following Yves Smith) that this is now also the road the US is on.

 … Citibank and Bank of America are now using TARP funds they received not to extend more loans (the ostensible purpose of the bailout), but rather, to buy up more and more of the very distressed assets that Geithner insists they need to be relieved of, because they now know that, under Geithner’s plan, they will be able to sell them at a substantial profit courtesy of public funds (i.e, the Government will buy those crippled assets at well above their current market price).  

Quite simply, this is looting of the public purse by a powerful elite.  Greenwald goes on to put his finger on the central problem.

The key dynamic underlying all of this — the linchpin that allows it all to happen and, historically, the primary hallmark of a deeply broken nation — is the total elimination of the rule of law for the ruling class, with a simultaneous intensification of the law as a weapon against the citizenry.  Does anyone expect there to be any widespread prosecutions for those most responsible for the looting, systematic fraud and grand-scale theft of the last decade? 

It’s not quite as bad as that here in Britain as yet but we need to be alert; it’s a very slippery slope. 

The choice is between holding unequivocally to the rule of law or becoming just another banana republic.

(H/T naked capitalism)

Shredding Sir Fred – and friends

Rewarding senior executives for failure has become all too  common in recent years.  The £16 million pension awarded to Sir Fred Goodwin, former boss of RBS, may make him ‘media hate person of the day’ but his is only the latest in a long line of payments for destroying perfectly good companies.

Gordon Brown may view it as ”unacceptable” and be taking legal advice about how to claw it back but surely we need to draw the general lesson here and not just beat up on one case – however offensive that case might be. 

And that general lesson should surely encompass the thought that all rewards – including salaries, bonuses and pensions – should be commensurate with results.   In other words the perfectly justified public anger over this case (and banking bonuses generally) could and should be harnessed to put through some long-overdue changes to corporate governance.  

In too many large firms the rights of shareholders (and that means most of us through pension funds etc.) have been expropriated by a breed of self-serving managers who serve no higher goal than short term greed.  It is too easy for a dominant Chairman to pack his board with yes-men who can be relied on to lock arms and push back against even the most determined efforts to question pay awards or strategy.  No wonder we are in a mess.

Corporate governance needs to move on from being the domain of buccaneers and kleptocrats to one of managers who actually serve the longer term interests of shareholders (and in practice therefore also of employees and the wider society). 

So what can be done?

I suggest that legislation to restore shareholder control is the democratic and effective way to go.  Legislate that directors of public companies may only draw a salary package up to a maximum of a specified multiple of average wages in their firm – say a generous 20x.  That should be more than enough for anyone to live on!   Any remuneration above this level (whether as bonus or pension etc.) would be subject to two votes by shareholders -   the first to agree and set up a bonus scheme and a second vote five years later to confirm (or deny) any sums awarded under such a scheme.

In practice the shareholders would be pension funds etc so they would use such powers responsibly and sparingly but the threat of being able to do so would be a powerful deterrant to bad behaviour in the first place.

If it turned out that the Directors had been utterly foolish and/or negligent then the shareholders would have the right to decline to pay the accrued bonuses.   However ,shareholders would be constrained to behave fairly and not unreasonably or they would find it impossible to attract and retain quality management.

Funds accrued could earn interest while in trust so there is no ultimate loss to the directors involved – only a delay so that any short-termism is exposed.

And just imagine; if such legislation were introduced in the next few months and backdated to late last year,  it might even catch Sir Fred.

That would seem perfectly fair.

Clever stuff on PFI

The current edition of Private Eye (No 1229) makes a couple of  good points about the Private Finance Initiative.

Firstly, the labyrinthine processes necessary to tee up any project will inevitably slow down any economy-boosting investments to the point where they are too late to be fully effective.

Secondly, even the pretense that the private sector was shouldering some of the risk is unsustainable; with the government now explicitly underwriting the banks that provide the finance.

So what we are left with is a plan worthy of Baldrick at his cunning best whereby middlemen take a fat cut of public funds in return for making slowing developments down and making them more expensive.  Clever stuff!

The real driver behind PFI is, of course, New Labour’s desire to fiddle the books.  In the short term it can look like a winner if no-one notices (and by and large they don’t!) but in the longer term it comes back to bite you on the bum.   It is straight from the same stable of delusional finance that the banks have been living in for the last few years.

I have always been viscerely opposed to PFI, not because of any ideological opposition to public-private partnerships per se, but simply because it is a crazy idea – guaranteed to increase costs and complexity (the two usually go together).  Has no-one in government heard of the KISS principle (Keep It Simple, Stupid)?

Whatever savings may be found will almost certainly be more than offset by the high cost of financing (a big cost for capital projects even in ‘normal’ times) and the inflexible lawyer-defined relationships that result. 

If there is a case for improveing project management when building schools and hospitals etc. (and I am inclined to think there is), then address this issue directly and don’t imagine that involving private sector players with very different motives will somehow – magically – solve the problem.  The really serious problems more usually arise from the government’s habit of being a bad client – for instance by chopping and changing specifications in mid project.  PFI does not help with this – indeed it can only make it worse.

 But the biggest problem of all with PFI may be that in embracing it the state sets itself up as a honeypot.  Many of the most successful and fastest growing UK companies of the last decade have been those that set themselves up to exploit this growing market which depends on old-school-tie networks, on revolving doors and secret deals. 

As George Monbiot argues in Captive State: The Corporate Takeover of Britain, what PFI actually means is virtually no democratic control or accountability (under the convenient guise of  ”commercial confidence”).   Moreover, cost savings are illusory – financing costs are through the roof and FPI hospitals typically have substantially few beds than the ones they replace.  His account of the Skye Bridge PFI debacle is one of the scariest things I have ever read.

It was always a bit of a mystery to me why, judging by the Party’s relatively low profile on PFI, other Lib Dems did not apparently feel as I did about  it.  Could I be so far from the mainstream?   Then I stumbled across Vince Cable’s call for views on PFI dating from July 2007.   Some trolls of course, some not sure, but plenty of contributors who see PFI very much as I do.

Lets kill PFI off now before it does even more damage.

The Threat from the BNP

In the wake of the leaking of the BNP’s membership list, it is sobering to note that in the 2007 local elections they won a total of 300,000 votes for 754 candidates.  They now have 55 councillors on 22 different councils. 

Writing in Our Kingdom blog, Stuart Weir of Democratic Audit comments that while their overall share of the vote is only 1 – 2% nationally they have been successful at exploiting geographical concentrations and using electoral strategies modelled in part on the Lib Dem’s pavement politics to achieve unparalleled levels of representation.

Stuart Wilks-Heeg, who has recently updated earlier work on the BNP, is quoted a saying that their breakthrough represents a stark warning about the “advanced state of decay of local representative government in England”.  Apparently, in Burnley local representative democracy is sustained by a core group of activists who constitute just 0.1% of the town’s population!

At a time when Government nationally has palpably failed and when government locally is starved of resources, the danger local discontent leading to a major breakthrough are very real.  Certainly my sense is that outside of ‘planet politics’ the pressure is building fast.  Either mainstream parties channel it to useful ends or it will blow.

After the Referendum

As an ardent supporter of the ideal of the EU, I am delighted that the Irish have trashed the Lisbon Constitution (aka Treaty). In doing so, they have spoken for the many, including us Brits, who have not been allowed a vote.

For around 20 years I have been arguing that while I support the ideal of the EU, I could not in conscience, support this particular direction of constitutional evolution because it is, quite simply, fundamentally illiberal and undemocratic, centralizing and elitist.

Emerging reaction to the Irish vote only serves to underline this. As the BBC’s Mark Mardell notes in his blog:

But what will happen next? People are starting to back one of three options:

Ireland votes again;
Abandon Lisbon;
Move ahead without Ireland.

Luxembourg’s foreign minister has suggested that Ireland could be given assurances about defence and abortion: a clear prelude to a second vote.

The new Italian foreign minister, former commissioner Franco Frattini, said as he went in that the referendum was “a cold shower, but Europe does not stop for this”. Perhaps that is close to the third position.

Sadly, this is just as one has come to expect and continues a thoroughly ignoble tradition of carrying on regardless of public opinion, the rights of smaller countries and even the law.

The difficulty is that the EU has just grown like topsy from its beginnings as a very limited arrangement between just 6 countries in the 1950s. But the arrangements that its founders put in place back then are simply not scalable to a Europe of vastly greater ambitions and 27 members operating in the very different World of the 21st Century.

The EU establishment has simply not understood this ‘lack-of-scalability’ adequately, nor has it been able to suggest any alternative constitution to address it. (Arguably, the vested interests are such that they have little interest in alternatives which would inevitably upset their gravy-filled trough).

That is why they are so desperately trying to get the Lisbon Treaty adopted by fair means or foul – now mainly foul. But increasingly, I think the public does understand, albeit often in a confused way, that the EU is not working as it should, that it is too centralized, undemocratic and opaque. In short, it needs a restart with a radically different constitutional approach – one that is decentralized, democratic and transparent and which democrats of all stripes would be happy to support.

Those who cannot imagine any other plan, or indeed even that there COULD BE another plan, are in a terrible bind – soldier on in defiance of public opinion, law and common sense or give up on the whole European Project.

However, I sense that at long last there is a mood to think new and radical thoughts about Europe’s future. Am I right?

Clean Elections

Reform of political funding is very much on the agenda with the main parties deadlocked on positions that just happen to suit their traditional funding base – unions for Labour; big hitters for the Tories.  Here at last is a new idea (well, new to me at least) from the good old US of A.

It’s known as ‘Voter-Owned Elections’ or ‘Clean Elections’ and here’s how it works.  All supporters contribute an equal $5 – and only $5 – to their favoured candidate over an interval governed by the electoral timetable and up to the ceiling set for that election.

Result: no covert obligations to be paid back in government contracts or ‘difficult’ planning permissions awarded and, according to this account greater public engagement in the system.

Does anyone know more about it?