Showing posts with label orthodoxy. Show all posts
Showing posts with label orthodoxy. Show all posts
Thursday, 8 July 2021
Tuesday, 19 April 2016
What the great degree rip-off means for graduates: low pay and high debt
Aditya Chakrabortty in The Guardian
‘Ministers needed to sell universities to teenagers and their families – and in the process they have mis-sold them.’ Illustration: Bill Bragg
A few years back, I got my knuckles rapped by a government minister. In public. It was 2010: David Cameron had just come to power, and he was about to thrust university students into a new regime of higher tuition fees and debt.
Against that backdrop, I’d written a column criticising the way in which both Labour and Conservative governments marketed degrees as being some kind of social-mobility jetpack, zooming their wearers to more money and high-powered jobs. It was no such guarantee, I said, citing among other things Whitehall’s own plunging estimates of how much more graduates earn over a lifetime. Graduates, I said, would “probably end up doing similar work to their school-leaver parents – only with a debilitatingly large debt around their necks”.
For David Willetts, then universities minister, this was sheer and unpalatable sauce. In a speech to the annual conference of Universities UK, representing the top management of higher education, he named me – then tried to shame me. I was “wrong”, he claimed. Previous governments had indeed claimed that a graduate could expect to pull in £400,000 more over their lifetime than someone who hadn’t been to university. And, yes, his officials had knocked that estimate down to £100,000. But the difference, you see, was nothing to do with the increase in graduates – but “an improved methodology”. So I was “not comparing like with like”. Two Brains, one slap!
Willetts has since left parliament and gone to a far, far better place: the Resolution Foundation, an inequality thinktank that does much better work than the coalition government ever managed. But looking back, I shouldn’t have been surprised by either the reproof or the forum in which it was made. To sprinkle even a little doubt over the instrumental value of a degree is to take on both the well-paid managers of our universities, and Whitehall orthodoxy.
Higher education is “a phenomenal investment”, Conservative ministers tell us – even with tuition fees at nine grand a year. Repayments are only the equivalent of one “posh coffee” a day, according to the then universities minister Greg Clark (who is now communities secretary). “I think people recognise that that is a phenomenal investment,” he said. “It’s not just a good investment for the student, but actually it’s a good investment for the taxpayer.” I’ve seen ads on daytime TV for loans that do a softer sell than that.
And the marketing is still wrong. Take a look at research published last week by a team of economists from Cambridge, Harvard and the Institute for Fiscal Studies. They found that at 23 universities men typically earned less even 10 years after graduating than their counterparts who’d never been. The disparities are so yawningly wide that it makes a nonsense of talking about the “graduate premium”.
A student of economics at the LSE may walk into a City job and very soon be earning six figures. Their life and career will be utterly different from someone doing business studies, say, at a post-1992 university close to home in the north-east, and then chooses to work in the same area. Yet both are deluged with the official and industrial marketing that a mortar board and gown is worth an extra £100,000 over a lifetime.
Both New Labour and the dwindling band of Cameronian Conservatives have peddled the line that higher education breaks down class barriers. Again, untrue: last week’s research shows that students from the richest families did better than everyone else in the graduate job market – and earned far more than even those who’d done the same course at the same university at the same time.
Ministers needed to sell universities to teenagers and their families – and in the process they have mis-sold them. In this new world of tuition fees and debt, children and their parents have been assured that degrees earn big salaries. At the same time, voters have been told that higher education brings social mobility. Both claims have been made far too broadly – and the losers are those now coming out of university with 50 grand owing to the student loan company, a socking great overdraft and the discovery that internships and coffee shops are the only prospects.
I and others have argued down the years that there is no point in creating more graduates unless you have more graduate-level jobs. Such a position strikes me as being so obvious as to be crass, but it has been ignored by successive governments.
The result can be seen in research published last August by the Oxford economists Ken Mayhew and Craig Holmes. They found that the UK now has proportionately more graduates than any other rich country bar Iceland – yet uses their brains much less than most other countries: the “underutilisation” of graduates – at work but not using their skills – is higher in the UK than anywhere in the EU bar Romania, Greece, Croatia, Latvia and Slovenia.
So what are our graduates doing? Jobs that previously didn’t need a degree. Over one in 10 childminders (11.5%, according to the 2014 Labour Force Survey) are graduates. One in six call-centre staff have degrees, as do about one in four of all air cabin crew and theme-park attendants. In a labour market flooded with graduates, picky employers are now able to take the CVs boasting a university education. And so any young person who didn’t go to university now stands to be treated as a second-class employee.
And universities – with the connivance of their vice-chancellors and marketing departments – have allowed themselves to be sold to the public largely as CV-finishing schools. It is a gross act of vandalism to have committed on a higher education system that the rest of the world once admired. And it has displaced all the other values that accrue both to the individual and to society from education. Critical thinking, public knowledge? You won’t get much change for those from a government that plans to gag academics from using their publicly funded research to question public policy and hold politicians to account.
As for Willetts, he owes me an apology. But nothing like as big as the one he and his colleagues owe to tens of thousands of university graduates, stuck in low-paying jobs that don’t use their expensively acquired skills and certainly don’t pay off their vast debts.
A few years back, I got my knuckles rapped by a government minister. In public. It was 2010: David Cameron had just come to power, and he was about to thrust university students into a new regime of higher tuition fees and debt.
Against that backdrop, I’d written a column criticising the way in which both Labour and Conservative governments marketed degrees as being some kind of social-mobility jetpack, zooming their wearers to more money and high-powered jobs. It was no such guarantee, I said, citing among other things Whitehall’s own plunging estimates of how much more graduates earn over a lifetime. Graduates, I said, would “probably end up doing similar work to their school-leaver parents – only with a debilitatingly large debt around their necks”.
For David Willetts, then universities minister, this was sheer and unpalatable sauce. In a speech to the annual conference of Universities UK, representing the top management of higher education, he named me – then tried to shame me. I was “wrong”, he claimed. Previous governments had indeed claimed that a graduate could expect to pull in £400,000 more over their lifetime than someone who hadn’t been to university. And, yes, his officials had knocked that estimate down to £100,000. But the difference, you see, was nothing to do with the increase in graduates – but “an improved methodology”. So I was “not comparing like with like”. Two Brains, one slap!
Willetts has since left parliament and gone to a far, far better place: the Resolution Foundation, an inequality thinktank that does much better work than the coalition government ever managed. But looking back, I shouldn’t have been surprised by either the reproof or the forum in which it was made. To sprinkle even a little doubt over the instrumental value of a degree is to take on both the well-paid managers of our universities, and Whitehall orthodoxy.
Higher education is “a phenomenal investment”, Conservative ministers tell us – even with tuition fees at nine grand a year. Repayments are only the equivalent of one “posh coffee” a day, according to the then universities minister Greg Clark (who is now communities secretary). “I think people recognise that that is a phenomenal investment,” he said. “It’s not just a good investment for the student, but actually it’s a good investment for the taxpayer.” I’ve seen ads on daytime TV for loans that do a softer sell than that.
And the marketing is still wrong. Take a look at research published last week by a team of economists from Cambridge, Harvard and the Institute for Fiscal Studies. They found that at 23 universities men typically earned less even 10 years after graduating than their counterparts who’d never been. The disparities are so yawningly wide that it makes a nonsense of talking about the “graduate premium”.
A student of economics at the LSE may walk into a City job and very soon be earning six figures. Their life and career will be utterly different from someone doing business studies, say, at a post-1992 university close to home in the north-east, and then chooses to work in the same area. Yet both are deluged with the official and industrial marketing that a mortar board and gown is worth an extra £100,000 over a lifetime.
Both New Labour and the dwindling band of Cameronian Conservatives have peddled the line that higher education breaks down class barriers. Again, untrue: last week’s research shows that students from the richest families did better than everyone else in the graduate job market – and earned far more than even those who’d done the same course at the same university at the same time.
Ministers needed to sell universities to teenagers and their families – and in the process they have mis-sold them. In this new world of tuition fees and debt, children and their parents have been assured that degrees earn big salaries. At the same time, voters have been told that higher education brings social mobility. Both claims have been made far too broadly – and the losers are those now coming out of university with 50 grand owing to the student loan company, a socking great overdraft and the discovery that internships and coffee shops are the only prospects.
I and others have argued down the years that there is no point in creating more graduates unless you have more graduate-level jobs. Such a position strikes me as being so obvious as to be crass, but it has been ignored by successive governments.
The result can be seen in research published last August by the Oxford economists Ken Mayhew and Craig Holmes. They found that the UK now has proportionately more graduates than any other rich country bar Iceland – yet uses their brains much less than most other countries: the “underutilisation” of graduates – at work but not using their skills – is higher in the UK than anywhere in the EU bar Romania, Greece, Croatia, Latvia and Slovenia.
So what are our graduates doing? Jobs that previously didn’t need a degree. Over one in 10 childminders (11.5%, according to the 2014 Labour Force Survey) are graduates. One in six call-centre staff have degrees, as do about one in four of all air cabin crew and theme-park attendants. In a labour market flooded with graduates, picky employers are now able to take the CVs boasting a university education. And so any young person who didn’t go to university now stands to be treated as a second-class employee.
And universities – with the connivance of their vice-chancellors and marketing departments – have allowed themselves to be sold to the public largely as CV-finishing schools. It is a gross act of vandalism to have committed on a higher education system that the rest of the world once admired. And it has displaced all the other values that accrue both to the individual and to society from education. Critical thinking, public knowledge? You won’t get much change for those from a government that plans to gag academics from using their publicly funded research to question public policy and hold politicians to account.
As for Willetts, he owes me an apology. But nothing like as big as the one he and his colleagues owe to tens of thousands of university graduates, stuck in low-paying jobs that don’t use their expensively acquired skills and certainly don’t pay off their vast debts.
Thursday, 19 July 2012
Time to explode the myth that the private sector is always better
Steve Richards in The Independent
The deeply embedded assumption that a slick, efficient, agile, selfless private sector delivers high-quality services for the public is being challenged once more in darkly comic circumstances. Those inadvertent egalitarians from the security firm G4S have failed to recruit enough security officers so it seems anyone will be able to wander in to watch the 100 metres final. Or at least that would have been the case if the public sector had not come to the rescue in the form of the army.
What an emblematic story of changing times. From the late 1970s until 2008, the fashionable orthodoxy insisted that the public sector alone was the problem. Advocates of the orthodoxy took a knock or two when the banking crisis cast light on parts of the pampered, sheltered and partially corrupt financial sector. Now we get a glimpse of incompetence and greed in another part of the private sector. As light is shed wider and deeper, we keep our fingers crossed that the public sector can rescue the Olympics from chaos.
The pattern is familiar but has been obscured until the arrival of this accessibly vivid example, an Olympic Games staged in a city paranoid about security without many security officers. For decades, private companies were hired on lucrative contracts for projects that the state could never allow to fail. If the companies delivered what was required, they earned a fortune. If they failed, the taxpayer found the money to meet the losses and those responsible for the cock-up often moved on to new highly paid jobs.
The lesson should have been learnt when Labour's disastrous Public Private Partnership for the London Underground collapsed, as this was another highly accessible example of lawyers, accountants and private companies making a fortune and failing to deliver. The Underground could never close, so all involved knew that in the event of failure, the Government or the Mayor of London would be forced to intervene. Boris Johnson described the arrangement at the time as "a colossal waste of money".
He was right, but that has not stopped his colleagues in Government looking to contract out to the private sector at every available opportunity. Andrew Lansley had hoped to make the NHS a great new playground for companies seeking an easy profit. He still might do so. Expect Michael Gove's so-called free schools to become profit-making enterprises if the Conservatives win the next election, and perhaps the academies, too. Maybe there will be a G4S-sponsored school.
G4S already runs prisons and some of the police operations that are being increasingly contracted out to private companies. The welfare-to-work contract secured by another company, much hailed by gullible ministers when the deal was announced as an example of efficiency and effectiveness, is already under critical scrutiny.
A fortnight ago, I argued that we are living through a slow British revolution partly as a result of the financial crisis and the exposure of reckless, unaccountable leadership from the City. The era of light regulation that allowed some bankers without much obvious talent to make a fortune is over. Now, slowly, the assumption held from Thatcher to Blair to Cameron that the delivery of public services should lie with the private sector is being overturned, too.
As is always the case in British revolutions, the change is being driven by startling events and not by political leadership. The Coalition still burns with an ideological zeal formed in the 1980s, the Conservative wing at one with Orange Book Liberal Democrats in their indiscriminate hunger for a smaller state and their undying faith in the private sector.
At the top of both parties, there are crusading advocates of an outdated vision that places too much faith in the likes of G4S and not enough in the potential dependability of a more efficient and accountable public sector.
This is not to argue that the public sector is perfect. Parts of it are complacently inefficient and paralysed by a sense of undeserved entitlement. The Coalition deserves some credit for seeking to increase transparency and accountability in an often over-managed and wasteful sector. In the case of the Olympics debacle and other equivalent deals, part of the culpability lies with government departments that negotiate on behalf of the taxpayer.
Last week, The Independent revealed that there had been no penalty clause in the G4S contract. On Tuesday, its unimpressive chief executive told the Home Affairs Committee that the company still expected to collect £57m for its contribution to the Olympic Games, an expectation that brings to mind once more that damning, ubiquitous phrase from the old Britain: "rewards for failure".
Who draws up these contracts? Which ministers sign them off? Why is their instinct always to outsource when there is now a mountain of evidence that failure follows?
Instead of focusing on the arduously unglamorous task of making the public sector more efficient and adaptable, ministers, like their New Labour predecessors, prefer still the deceptive swagger of the incompetent entrepreneur. The gullibility is more extraordinary now we finally get to know more about these supposed geniuses. Senior bankers earning millions stutter hesitantly when questioned by unthreatening MPs on select committees, incapable of articulating a case. Nick Buckles from G4S was so thrown by the Home Affairs Committee that he lapsed into a debate about whether the few security guards he had managed to hire spoke "fluent English", claiming not to know what such a term might mean. One of the great revelations since Britain's slow revolution began in 2008 is how many unimpressive mediocrities had risen in the unquestioning, unaccountable darkness that, until recently, acted as a protective layer for parts of the private sector.
But in the end look who is ultimately held to account. The Home Secretary, Theresa May, was called to the Commons twice this week to answer questions about what went wrong. She will be back in September. A government can outsource but it will still be held responsible, quite rightly, for the delivery of public services.
So political survival should motivate ministers in future to draw up much tighter deals with companies and to focus more on improving the public sector rather than expensively by-passing it. The voters have had enough of these abuses and yet, trapped by the past, some ministers show an ideological inclination to be abused for a little longer.
Tuesday, 17 April 2012
Economics has failed us: but where are the fresh voices?
Mainstream economic
models have been discredited. But why aren't political scientists and
sociologists offering an alternative view?
Actually do some meaningful work? Us? Top academics, The Young Ones Photograph: image.net
When the history of how a good crisis went to waste gets written up, it will surely contain a big chapter on the failure of our academic elites. Because just like the politicians, the taxpayer-funded intellectuals at our universities have missed the historic opportunities gifted to them by the financial collapse. And it will be the rest of us who pay the price.
At the start of the banking crisis, the air was thick with the sound of lachrymose economists. How did they miss the biggest crash since 1929? Professors at the LSE were asked that very question by the Queen – and were too tongue-tied to reply. A better answer came from Alan Greenspan, until recently the most powerful economist on the planet, who went to Capitol Hill and confessed to a "flaw" in his model of the world. Clearly, the economic crisis was also a crisis of economics.
With the all-powerful dismal-ists temporarily discredited, an opportunity opened up for the sociologists, the political scientists and the rest to charge in, have their say – and change the way public policy is shaped.
If all that sounds like a battle of the -ologies to you, then consider: no discipline has so profoundly shaped Britain or America over the past 30 years as mainstream economics, with its almost unshakeable faith in markets, and its insistence on taking politics out of the public sphere. Displace that narrow, straitened form of economics from its position as the orthodoxy on modern capitalism, and you have a shot at changing capitalism itself.
So have the non-economists grasped their moment? Have they hell. Look at the academic conferences held over the past few weeks, at which the latest and most promising research in each discipline is presented, and it's as if Lehman Brothers never fell over.
Britain's top political scientists met in Belfast a couple of weeks ago, and you'd have thought there'd be plenty in the crisis for them to discuss, from the technocrat governments installed in southern Europe to the paralysis of British politicians in the face of the banks. But no: over the course of three days, they held exactly one discussion of Britain's political economy. There was more prominence given to a session on how academic research could advance dons' careers.
Perhaps you have more faith in the sociologists. Take a peek at the website for the British Sociological Association. Scroll through the press-released research, and you will not come across anything that deals with the banking crash. Instead in April 2010, amid the biggest sociological event in decades, the BSA put out a notice titled: "Older bodybuilders can change young people's view of the over-60s, research says."
Or why not do the experiment I tried this weekend: go to three of the main academic journals in sociology, where the most noteworthy research is collected, and search the abstracts for the terms "finance" or "economy" or "markets" since the start of the last decade.
Comb through the results for articles dealing with the financial crisis in even the most tangential sense. I found nine in the American Sociological Review, three in Sociology ("the UK's premier sociology journal"), and one in the British Journal of Sociology. Look at those numbers, and remember that the BSA has 2,500 members – yet this is the best they could do.
Sociologists are reliably good at analysing the fallout from crises: the recessions, the cuts, the dispossessed, the repossessed. I'd expect them to be in for a busy few years. But on the upstream stuff, the causes of this crisis, they are practically silent. At Oxford, Donald MacKenzie has pulled off remarkable close-up studies of financiers in action but without context or politics: the view is all cogs and no car. Indeed, leave aside three remarkable books from Karen Ho, David Graeber and Alexandra Ouroussoff, all of whom are anthropologists (and all discussed here previously), and the bigger picture is still in the hands of those formerly shamefaced, but now rather assertive, economists. One promising initiative has just begun on the Open Democracy website called Uneconomics, where non-economists do chip in on the upstream causes of the crisis. But that's it: a cheap and cheerful internet forum. The Second International it ain't.
It wasn't always like this. One way of characterising what has happened in America and Britain over the past three decades is that people at the top have skimmed off increasing amounts of the money made by their corporations and societies. That's a phenomenon well covered by earlier generations of sociologists, whether it's Marx with his study of primitive accumulation, or the American C Wright Mills and his classic The Power Elite, or France's Pierre Bourdieu.
But those sociologists were public academics, unafraid to stray outside their disciplines. Compare that with the picture of today's teacher in a modern degree-factory, forever churning out publications for their discipline's top-rated journals. Not much scope there to try out a speculative research project that might not fly, or to collaborate with specialists in other subjects.
Nor is there much encouragement to engage with public life. Because that's what's really missing from the other social sciences. When an entire discipline does what the sociologists did at their conference last week and devotes as much time to discussing the holistic massage industry ("using a Foucauldian lens") as to analysing financiers, they're never going to challenge the dominance of mainstream economics. And it's hard to believe they really want to.
Wednesday, 7 December 2011
The true costs of Keynes
By Martin Hutchinson
Adolf Hitler, Joseph Stalin and Mao Zedong each killed tens of millions of people, and John Maynard Keynes was a pacifist who never fired a shot in anger. However, economically, when the billions come to be totted up, it may well be the case that Keynes was the most destructive of the four.
He cannot entirely be blamed for mistakes in monetary policy, which he never understood, and even his "stimulus" ideas owed much to those who came before him - for example Arthur Pigou - and after him - for example Joan Robinson. Yet the other value destroyers had their henchmen too, in Heinrich Himmler, Lavrenti Beria and Jiang Qing. Overall, when henchmen are added in, Keynes runs the other value destroyers close, and may in the future surpass them as his value-destructions continue. Truly, persuasive but misguided economic theories can be much more damaging than they appear.
This is not to claim that big government per se is value-destructive (it is, but that's a separate issue.) The right size of government is a matter for legitimate debate, and successful societies such as Sweden and Singapore can be built with very different sizes of government. Personally, I would rather live in Singapore than Sweden, and I would expect Singapore to exhibit markedly faster long-term economic growth than Sweden, but both societies run their finances in a responsible manner and are models of governmental integrity.
Since both Sweden and Singapore currently have modest budget surpluses and have kept control of their currencies and avoided excessive monetary stimulus, they are in the modern debased sense of the term non-Keynesian, even if the managers of Sweden's economy might well describe themselves as Keynesians for the sake of harmony at international gatherings.
The Keynesian fallacy is in essence one of getting something for nothing. By Keynesian fiscal stimulus, normally involving spending more money though occasionally through tax cuts, providing they avoid the annoyingly savings-prone rich, we are supposed to produce additional economic output whenever there is an "output gap" from full employment, that is, in all conditions save those of a raging boom, when resources are scarce.
Keynes himself recommended such stimulus only at the bottom of deep recessions, and suggested that it should be balanced by running budget surpluses in times of boom. Needless to say, his disciples have neglected the disciplines he recommended.
Similarly, the analogous monetary policy (which Keynes personally did not advocate, since he believed that interest rates had no effect on output) pushes down interest rates and indulges in ever-more lavish bouts of monetary "stimulus" in the belief that by doing so the economy can be persuaded to expand more rapidly.
It's fair to claim that monetary stimulus does not derive directly from Keynes (though it is not new - it was a policy advocated by Keynesians in the 1960s Lyndon B Johnson administration, for example.) However fiscal stimulus is a direct product of Keynes' 1936 General Theory and both forms of stimulus derive from Keynes' overall approach of flouting economic orthodoxy and using ingenious paradox to propound unorthodox policies.
Keynes was the origin of the "stimulus" approach; its central idea that by manipulating monetary or fiscal policy we can get a bigger government than we pay for is his. It is thus fair to blame the costs of that approach on him.
Those costs are considerable. In the 1930s, US president Herbert Hoover's reckless expansion of government spending, including loans to cronies through the Reconstruction Finance Corporation, caused further slowdown in the economy, which was exacerbated by his dreadful early 1932 increase in the top marginal rate of tax from 25% to 63%.
Then, as I discussed a few weeks ago, Franklin Roosevelt's New Deal deficit spending, combined with his reckless "set the gold price in my pyjamas" monetary policy prolonged the Great Depression far longer than would naturally have occurred, delaying full recovery from 1934-35 to 1939-40.
In the recent unpleasantness, fiscal stimulus worldwide initially appeared merely ineffective. By diverting resources from the productive private sector to unproductive public sector boondoggles it reduced long-term output. In the US case, the Barack Obama stimulus converted a vigorous recovery into an anemic one; only in the third quarter of 2011, after the effects of stimulus had begun to wear off, did output begin to accelerate and unemployment trend down (in this case we should celebrate public sector job losses and declines in public sector output, since they free up resources for healthy private sector growth!).
However, with the euro crisis it has become clear that fiscal stimulus, if excessive, has an exponentially adverse effect. By increasing deficits to unsustainable levels, it precipitates bond market fears about the state's credit risk. Naturally, that strangles credit availability to almost all entities domiciled in the country concerned.
Thus while a mild fiscal stimulus in a country that before recession was running a surplus might be mildly beneficial (because the differential between private sector savings rates and the 100% stimulus spending rate outweighed the inefficiency effect of diverting resources to the public sector), a large fiscal stimulus, or one incurred in a country like Greece or the 2009 US that was already dangerously in deficit, will cause economic damage rising to many times the value of the stimulus itself, persisting for years or even decades to come.
Monetary stimulus is similarly damaging. As Walter Bagehot remarked over a century ago, the correct response to financial crisis is to lend on top quality security at very high interest rates. This was notably not done in 2008; instead the injection of liquidity to favored companies was accompanied by pushing interest rates far below inflation. Repeating the monetary stimulus in 2010 and again in 2011, when in the United States at least the financial crisis was over, was inexcusable.
Monetary stimulus causes structural damage to the economy in the following ways:
|
As recent events have overwhelmingly demonstrated, both fiscal and monetary stimulus are highly addictive, since they appear to provide something for nothing and the cost of reversing them appears unpleasant to the Keynesians who control the levers of policy. As to their cost, the current Congressional Budget Office projections suggest that there is at present a 5% output gap below full employment, and that the output gap will disappear only in 2016. The cost of current Keynesian policies over 2009-16 can thus be conservatively estimated at about 15% of GDP, or $2.2 trillion in today's dollars. To that we can add very roughly 50% of one year's 1929 GDP, for the output lost through Keynesian policies in 1932-40, or another $500 billion, for a very conservative total of $2.7 trillion all-told in the United States alone. That may not sound sufficient to counterbalance the tyrants' depredations, but consider: 1930s Germany, 1940s Russia and 1950s China were all much poorer countries than the modern United States. Very roughly, Germany's 1936 GDP and the Soviet Union's 1940 GDP were both about $500 billion modern dollars, while China's 1955 GDP was about $1,500 billion. Thus Hitler and Stalin could have destroyed their entire output for more than five years, and Mao for almost two years, before doing as much economic damage as Maynard Keynes has wreaked in one country. It's a rough calculation, but illuminating - and while Hitler, Stalin and Mao are long gone, Keynes' depredations continue. Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions. |
Tuesday, 2 August 2011
Why do political leaders stride into the same trap, even having witnessed the fate of those who went before them?
Steve Richards: History repeats itself in Libya
Tuesday, 2 August 2011 in The Independent
The same pattern applies in politics. Governments tend to make the same colossal mistakes as their predecessors. Leading figures recognise the errors when they were committed the first time around but then proceed to make a similar set of misjudgements. It's as if they are trapped by dark forces beyond their control.
This is what has happened with David Cameron's response to the crisis in Libya. He watched the first time around, recognised the mistakes and repeated them. The invasion of Iraq was on a much bigger scale and conducted without the support of the UN. Nonetheless, there are precise parallels with Libya. George Bush and Tony Blair invaded Iraq without having a clear outcome in mind. Their official war aims as far as they were specified did not include the removal of Saddam, although that was the outcome they hoped for.
Both leaders assumed that Iraqis would welcome them as liberators and that democracy would follow. As with the earlier war in Afghanistan, Blair declared that financial costs would be relatively low. In the build-up to Iraq, most newspapers hailed Blair for his political courage, even though he was siding with the most powerful military force in the world against an ageing tyrant. We know what followed.
More importantly, David Cameron knew what followed. Friends of Cameron insist he had deep doubts about the war in Iraq at the time, although he voted for it. Later, as Leader of the Opposition, he made one of his best speeches, during which he argued that a lesson of Iraq was that countries could not be bombed into democracy. With Cameron it is not always easy to judge whether he meant what he said or was seeking crudely to widen his party's appeal by belatedly marking distance for Iraq. Still, that was what Cameron argued, in an extensively briefed speech. I recall talking to him at length about it at the time. We must presume he recognised complexity and nuance as the calamity of Iraq unfolded.
Yet earlier this year Cameron rushed to the Commons to make an emergency statement. He supported a no-fly zone over Libya and had taken the lead in securing it. The aim was to protect the Libyans but he hoped the outcome would be the removal of Gaddafi, although this was not an objective. The cost would be a few million pounds. In large parts of the media Cameron was hailed for his leadership and courage.
A few months later and we are in another familiar phase of the pattern. The dictator is still there. The alternative might well be as unsavoury. Questions are being asked about why military action is taken in Libya, but not in Syria.
Here the Defence Select Committee estimates the costs of the campaign have exceeded early predictions and have already risen to beyond £200m. There is no end to the conflict in sight, so that figure will continue to rise. The same committee calculates that the cost of Afghanistan to the UK Government has been at least £18bn and it is probably a lot more than that.
Cameron and George Osborne argue that spending went out of control in the early years of this century. They may have a case, but in terms of the specifics they supported all the areas where expenditure rose. One of them was the cost of fighting major wars. Here we go again.
Why do political leaders stride into the same trap, having resolved not to do so when witnessing the fate of those that went before them? Cameron is not the first to do so. On the domestic front in the 1970s there was a similar eerie pattern. Ted Heath got into fatal difficulties as he attempted to impose a pay policy. His opponent, Harold Wilson, was scathing until he won an election. Shortly afterwards, he also imposed one. Jim Callaghan was also sceptical but succumbed in the same way and was brought down by it. In the end, all three Prime Ministers followed the same deadly route having resolved not to do so. They could see no alternative. They were too scared of breaking with corporatist orthodoxy. Having been brought up politically in the 1930s, they feared the social and economic consequence of high unemployment.
On Libya Cameron could see no alternative. He feared a slaughter. He is the heir to Blair and as he contemplated what to do about Libya, he reflected on his hero and what he would have done. Cameron was brought up politically at a time when Britain deployed military force without asking too many awkward questions. Now he is trapped, just as the leaders in the 1970s were in relation to their economic policies.
I make no prescription as to what outsiders can do to tame selected tyrants but we know from recent conflicts what does not work. Or do we? We are about to do so. Orthodoxies change and leaders learn, but after knowing the risks involved, they still make the same miscalculations as those who preceded them.
Tuesday, 28 June 2011
Narasimha Rao - The Unsung hero of the India story
by S A Aiyar in Swaminomics
Twenty years ago, Narasimha Rao became Prime Minister and initiated economic reforms that transformed India. The Congress party doesn’t want to remember him: it is based entirely on loyalty to the Gandhi family, and Rao was not a family member. But the nation should remember Rao as the man who changed India, and the world too.
In June 1991, India was seen globally as a bottomless pit for foreign aid. It had exhausted an IMF loan taken six months earlier and so was desperate. Nobody imagined that, 20 years later, India would be called an emerging superpower, backed by the US to join the UN Security Council, and poised to overtake China as the world’s fastest growing economy.
For three decades after Independence, India followed inward looking socialist policies aiming at public sector dominance. The licence-permit raj mandated government clearance to produce, import or innovate. If you were productive enough to create something new or produce more from existing machinery, you faced imprisonment for the dreadful crime of exceeding licensed capacity.
Socialism reached its zenith in the garibi hatao phase of Indira Gandhi (1969-77), when several industries were nationalized and income tax went up to 97.75%. This produced neither fast growth nor social justice. GDP growth remained stuck at 3.5% per year, half the rate in Japan and the Asian tigers. India’s social indicators were dismal, often worse than in Africa. Poverty did not fall at all despite three decades of independence.
In the 1980s, creeping economic liberalization plus a government-spending spree saw GDP growth rise to 5.5%. But the spending spree was based on unsustainable foreign borrowing, and ended in tears in 1991.
When Rao assumed office, the once-admired Soviet model was collapsing. Meanwhile, Deng had transformed China through market-oriented reforms. Rao opted for market reforms too. He was no free market ideologue like Ronald Reagan or Margaret Thatcher: he talked of the middle path. His model was Willy Brandt of Germany.
His master stroke was to appoint Manmohan Singh as finance minister. Rao wanted a non-political reformer at the centre of decision-making, who could be backed or dumped as required. He presented Singh as the spearhead of reform while he himself advocated a middle path. Yet, ultimately, it was his vision that Singh executed.
In his first month in office, the rupee was devalued. There followed the virtual abolition of industrial licensing and MRTP clearance. At one stroke, the biggest hurdles to industrial expansion disappeared. Who was the industry minister who initiated these revolutionary reforms? Narasimha Rao himself! He held the industry portfolio too.
Yet he did not want draw attention to himself. So he ingeniously made the delicensing announcement on the morning of the day Manmohan Singh was presenting his first Budget. The media clubbed the Budget and delicensing stories together as one composite reform story. In the public mind, Manmohan Singh was seen as the liberalizer, while Rao stayed in the background.
Singh initiated the gradual reduction of import duties, income tax and corporate tax. Foreign investment was gradually liberalized. Imports of technology were freed. Yet the overall government approach was anything but radically reformist. When bank staff threatened to go on strike, Rao assured them that there would be no bank privatization or staff reforms. When farmers threatened to take to the streets, Rao assured them there would be no opening up of Indian agriculture.
The IMF and World Bank believed that when a country went bust, that was the best time for painful reforms like labour reforms. However, Rao took the very opposite line. He focused on reforms that would produce the least mass losers (such as industrial delicensing) and yet produced 7.5% growth in the mid-1990s. These gave reforms a good name, and ensured their continuance even when Opposition parties later came to power.
In the 2000s, the cumulative effect of gradual reform finally made India an 8.5% miracle growth economy. Rao got no glory for this. He had lost the 1996 election amidst charges of buying the support of JMM legislators. This led to his exit as Congress chief. Although he was eventually exonerated by the courts, he died a political nobody.
How unjust! He deserves a high place in economic history for challenging the Bank-IMF approach on painful austerity, and focusing instead on a few key changes that produced fast growth with minimum pain. The World Bank itself later changed its policy and started targeting “binding constraints” (like industrial licensing)
Manmohan Singh said repeatedly that he could have achieved nothing without Rao’s backing. Today, 20 years after the start of India’s economic miracle, let us toast India’s most underrated Prime Minister — Narasimha Rao.
Twenty years ago, Narasimha Rao became Prime Minister and initiated economic reforms that transformed India. The Congress party doesn’t want to remember him: it is based entirely on loyalty to the Gandhi family, and Rao was not a family member. But the nation should remember Rao as the man who changed India, and the world too.
In June 1991, India was seen globally as a bottomless pit for foreign aid. It had exhausted an IMF loan taken six months earlier and so was desperate. Nobody imagined that, 20 years later, India would be called an emerging superpower, backed by the US to join the UN Security Council, and poised to overtake China as the world’s fastest growing economy.
For three decades after Independence, India followed inward looking socialist policies aiming at public sector dominance. The licence-permit raj mandated government clearance to produce, import or innovate. If you were productive enough to create something new or produce more from existing machinery, you faced imprisonment for the dreadful crime of exceeding licensed capacity.
Socialism reached its zenith in the garibi hatao phase of Indira Gandhi (1969-77), when several industries were nationalized and income tax went up to 97.75%. This produced neither fast growth nor social justice. GDP growth remained stuck at 3.5% per year, half the rate in Japan and the Asian tigers. India’s social indicators were dismal, often worse than in Africa. Poverty did not fall at all despite three decades of independence.
In the 1980s, creeping economic liberalization plus a government-spending spree saw GDP growth rise to 5.5%. But the spending spree was based on unsustainable foreign borrowing, and ended in tears in 1991.
When Rao assumed office, the once-admired Soviet model was collapsing. Meanwhile, Deng had transformed China through market-oriented reforms. Rao opted for market reforms too. He was no free market ideologue like Ronald Reagan or Margaret Thatcher: he talked of the middle path. His model was Willy Brandt of Germany.
His master stroke was to appoint Manmohan Singh as finance minister. Rao wanted a non-political reformer at the centre of decision-making, who could be backed or dumped as required. He presented Singh as the spearhead of reform while he himself advocated a middle path. Yet, ultimately, it was his vision that Singh executed.
In his first month in office, the rupee was devalued. There followed the virtual abolition of industrial licensing and MRTP clearance. At one stroke, the biggest hurdles to industrial expansion disappeared. Who was the industry minister who initiated these revolutionary reforms? Narasimha Rao himself! He held the industry portfolio too.
Yet he did not want draw attention to himself. So he ingeniously made the delicensing announcement on the morning of the day Manmohan Singh was presenting his first Budget. The media clubbed the Budget and delicensing stories together as one composite reform story. In the public mind, Manmohan Singh was seen as the liberalizer, while Rao stayed in the background.
Singh initiated the gradual reduction of import duties, income tax and corporate tax. Foreign investment was gradually liberalized. Imports of technology were freed. Yet the overall government approach was anything but radically reformist. When bank staff threatened to go on strike, Rao assured them that there would be no bank privatization or staff reforms. When farmers threatened to take to the streets, Rao assured them there would be no opening up of Indian agriculture.
The IMF and World Bank believed that when a country went bust, that was the best time for painful reforms like labour reforms. However, Rao took the very opposite line. He focused on reforms that would produce the least mass losers (such as industrial delicensing) and yet produced 7.5% growth in the mid-1990s. These gave reforms a good name, and ensured their continuance even when Opposition parties later came to power.
In the 2000s, the cumulative effect of gradual reform finally made India an 8.5% miracle growth economy. Rao got no glory for this. He had lost the 1996 election amidst charges of buying the support of JMM legislators. This led to his exit as Congress chief. Although he was eventually exonerated by the courts, he died a political nobody.
How unjust! He deserves a high place in economic history for challenging the Bank-IMF approach on painful austerity, and focusing instead on a few key changes that produced fast growth with minimum pain. The World Bank itself later changed its policy and started targeting “binding constraints” (like industrial licensing)
Manmohan Singh said repeatedly that he could have achieved nothing without Rao’s backing. Today, 20 years after the start of India’s economic miracle, let us toast India’s most underrated Prime Minister — Narasimha Rao.
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