Everything we hold dear is being cut to the bone. Weep for our country

Will Hutton in The Guardian


Last Thursday, my wife was readmitted to hospital nearly two years after her first admission for treatment for acute lymphoblastic leukemia. She is very ill, but the nursing, always humane and in sufficient numbers two years ago, is reduced to a heroic but hard-pressed minimum. She has been left untended for hours at a stretch, reduced to tearful desperation at her neglect. The NHS, allegedly a “protected” public service, is beginning to show the signs of five years of real spending cumulatively not matching the growth of health need. Between 2010 and 2015, health spending grew at the slowest (0.7% a year) over a five-year period since the NHS’s foundation. As the Health Foundation observed last week, continuation of these trends is impossible: health spending must rise, funded if necessary by raising the standard rate of income tax.

There will be tens of thousands of patients suffering in the same way this weekend. Yet my protest on their behalf is purposeless. It will cut no ice with either the chancellor or his vicar on earth, Nick Macpherson, permanent secretary at the Treasury. Their twin drive to reduce public spending to just over 36% of GDP in the last year of this parliament is because, as Macpherson declares more fervently than any Tory politician, the budget must be in surplus and raising tax rates is impossible. Necessarily there will be collateral damage. It is obviously regrettable that there are too few nurses on a ward, too few police, too few teachers and too little of every public service. but this is necessary to serve the greater cause of debt reduction.

To reduce the stock of the public debt to below 80% of GDP and not pay a penny more in income or property tax, let alone higher taxes on pollution, sugar, petrol or alcohol, is now our collective national purpose. Everything – from the courts to local authority swimming pools – is subordinate to that aim.

Not every judgment George Osborne makes is wrong. He is right to advocate the northern powerhouse, to spend on infrastructure, to stay in the EU, radically to devolve control of public spending to city regions in return for the creation of coherent city governance and to sustain spending on aid and development. It is hard to fault raising the minimum wage or to try to spare science spending from the worst of the cuts.

But the big call he is making is entirely misconceived. There is no economic or social argument to justify these arbitrary targets for spending and debt, especially when the cost of debt service, given low interest rates and the average 14-year term of our government debt, has rarely been lower over the past 300 years.

This is not to contest the need to balance current public spending and current revenues over the economic cycle. As I wrote in my first book, The Revolution That Never Was, completed 30 years ago this month, Keynes was no deficit denier. But governments have choices about how they arrive at this outcome.

The Conservatives’ choice is driven by a refusal to see any merit in public activity: in their worldview, the point of life and the purpose of civilisation is to celebrate and protect the private individual, the private firm and private property. The state should be as small as possible. It has no role, say, in owning Channel 4 to secure public service broadcasting; it will be privatised with scant care about its ultimate owner. Equally, there was no point in holding the 40% stake in Eurostar, forecast to generate more than £700m in dividends over the next decade and a good payback for £3bn of public investment. Thus it was sold for £757m in March, the government concerned to get the sale through before the general election. You could only proclaim a £2.25bn loss on the public balance sheet and the surrender of £700m of dividends as a “fantastic deal for UK taxpayers”, as Osborne did, if you see zero value in public activity.

It is this philosophy that will drive the choices to be laid out on Wednesday. The spending of the so-called protected departments – the £189bn spent this year on the NHS, schools for five- to 16-year-olds, aid and defence – will rise in cash terms in line with inflation, but only to buy the same in 2019-20 as it does today, an unprecedented decade-long freeze in real terms. The block grants to Scotland, Wales and Northern Ireland will be hit slightly harder, protected only in cash terms, implying, after adjusting for inflation, a small real fall. The axe therefore has to fall on what is left – £77bn of spending by 15 departments along with non-school spending.

So if we take the summer budget and Office of Budget Responsibility economic forecasts as the baseline (both may change) – and there are no new tax increases – to meet his target, the chancellor has to find £22bn of cuts from this £77bn, crucial areas of our national life that have already cumulatively been cut by 30% since 2010.

As the Resolution Trust points out, seven of the smaller departments have settled for 21% cuts, which leaves the big five – Business, Communities and Local Government, Justice, the Home Office and non-schools education – to bear the brunt. This can only mean the de facto wind-up of the Department for Business as a pro-active department, further shrinkage of the criminal justice system (mitigated by prison sell-offs), local government reduced to a husk and the knell of further education. Meanwhile, the cuts in welfare will hit the wellbeing of millions, including their children. Expect on top a firesale of government assets – from housing associations to Channel 4.

Is this wanted, necessary or appropriate for these profoundly troubled times? I think it’s a first-order category error and that in 2015 the need – whether protection from terrorism or the promotion of innovation and investment – is for complex collaborative action between a properly resourced, agile public sector and a private sector in desperate need of remoralising and repurposing. There is no magic in a 36% state. But as Osborne knows, he is politically free to do what he wants. The leadership of the Labour party offers no substantive intellectual or political opposition, nor represents a potential governing coalition, nor, wedded to a bankrupt simplistic top-down statism, understands the complexities of these new times. Rarely has the principal opposition party been so irrelevant at a time of national need. All that is left is noises off – the odd newspaper editorial or column and civil society and business beginning to stir as they experience the impact. Weep for our country.

‘Living within our means’ makes no economic sense. Labour is right to oppose it

Ha Joon Chang in The Guardian

Some have called it a U-turn; others have described it as a shambles. But John McDonnell’s volte face was the right thing to do, even though it meant losing face, big time.

On the eve of the Labour party conference, McDonnell surprised detractors and supporters alike by saying that Labour should vote for George Osborne’s new fiscal charter, which requires the country to run budget surplus in “normal times”. Now McDonnell says his party should vote against it.

Admittedly, even when proposing to vote in favour of Osborne’s charter, McDonnell advocated a different vision of fiscal responsibility from what the chancellor was proposing. McDonnell pointed out that running a budget surplus means taking demand out of the economy, so there is an economic illiteracy in wanting to run one more or less permanently. He also argued that surplus should be run only on the current (consumption) component of the budget, and that deficit could – and should – be run on the capital (investment) component of it. His view was that if you borrow to invest, the debt will more than pay for itself in the long run as the investment matures and raises the economy’s output, and thus tax revenue.

The shadow chancellor was also insistent that, even while reducing the deficit, he would do it in a more equitable way. Rather than mainly squeezing the most vulnerable groups, as the Conservatives have been doing, the fiscal gap would be closed by raising taxes on the top earners and, especially, being much tougher on tax avoidance and tax evasion.

However, these are all part of the fine print. Once you accept that you have to run a budget surplus in order to be “responsible”, you have, as an anti-austerity politician, already lost the debate. You win a political debate by making people accept your vision, not by pointing out that you offer them better terms in the fine print – which they are unlikely to read anyway.

So if McDonnell is going to win the economic debate, he needs to change its terms. He has to start by doing another U-turn on the statement: “We accept we are going to have to live within our means, and we always will do – full stop.”Because this is simply wrong. This view assumes that our means are given, and we cannot spend beyond them. However, our means in the future are partly determined by what we do today. And if our means are not fixed, then the very idea of living within them loses its meaning.

For example, if you borrow money to do a degree or get a technical qualification, you will be spending beyond your means today. But your new qualification will increase your future earning power. Your future means will be greater than they would have been if you hadn’t taken out the loan. In this case, living beyond your means is the right thing to do.

Now: if you are a government, your means are even more flexible.

Like individuals, of course, a government can increase its means in the long run by borrowing to invest in things that will make the economy more productive, and thus increase the tax revenue. If a government invests in improving the transport system, it will make the country’s logistics industry more efficient. Or if it invests in healthcare and education, that will make the workers more productive.

More importantly, unlike individuals, a government has the ability to spend “money it does not have”, only to find later that it had the money after all. The point is that deficit spending in a stagnant economy will increase demand in the economy, stimulating business and making consumers more optimistic.

If enough businesses and consumers form positive expectations as a result, they will invest and spend more. Increased investment and consumption then generate higher incomes and higher tax revenues. If the tax take increases sufficiently, the government deficit may be eliminated, which means that the government had the money that it spent after all.

If Labour wants to re-establish its credentials for economic management, it needs to start by rejecting the “living within our means” mantra. The idea may have as much obvious appeal as other examples of homespun philosophy, but it is one that is more fitting for 18th-century household management than for the management of a complex 21st-century economy.

Unless the Labour party changes its foundational belief in the virtue of the government living within its means, British voters will never be convinced of the finer points of Keynesian economics, or of the ethics of inequality, that John McDonnell is trying to make.

Greek elections: Syriza’s young radicals plot a political earthquake for Europe

Inside its smoke-filled HQ, the far-left party is making plans to defy the EU over Greece’s debt and abolish draconian austerity measures imposed to shore up the euro. But first it must win next Sunday’s general election 

• 
• • Helena Smith in Athens
  • The Observer, Saturday 17 January 2015 22.49 GMT

Syriza leader Alexis Tsipras, second right, celebrates success in May’s European parliament elections with Athens governor Rena Dourou, left, and mayoral candidate Gabriel Sakellaridis Photograph: Corbis/Panayiotis Tzamaros

An air of excitement pervades the headquarters of Greece’s far-left Syriza party. In small, smoke-filled rooms, off corridors plastered with posters advertising Marxist seminars and cluttered with coffee cups and leftover meals, staff pore over computers. Most are women, young and intense, cigarettes dangling from lips as they tap into keyboards. The hubbub of chatter is loud. Up narrow staircases people zoom this way and that. For the visitor there is no mistaking that the seven-storey building, overlooking one of Athens’s more rundown squares, is as much a place of workable chaos as it is a well of expectancy.

“Hope is coming,” proclaims a poster pinned to the noticeboards of almost every floor. “Greece is progressing, Europe is changing.”

“Welcome to Syriza,” says Panos Skourletis, the party’s grey-haired spokesman, proffering a guided tour of the offices’ newly renovated media room, “and please forgive the smoke.”

Barely a week before critical elections in a country once again caught up in the eurozone storm, Skourletis is buoyant. It is easy to see why. With every poll giving Syriza an indisputable lead, the radicals are on a roll. For Europe’s growing class of anti-austerians, victory is in sight. “We are going to win,” he enthuses somewhat triumphantly. “There is only one question, and that is by how much.”

If bookies in Athens are to be believed, the odds on the party securing an outright majority are still slim. But, says Skourletis, as the election campaign enters its final stretch things are looking up. “On the basis of data and empirical evidence, we believe we are going to get more and more votes from the undecided, because that is how it has worked for parties in the lead in the past.”

The leftwingers are not alone in taking note of the Greek electorate’s ballot-box intentions. From Westminster to Washington, Madrid to Rome, the 25 January poll is being seen as a potential watershed in the eurozone crisis. If the radicals are catapulted to power, their victory will resonate beyond Greece, reviving fears of Athens being led to the euro exit door.David Cameron and his prime ministerial counterparts in Spain and Portugal, who face electorates themselves later this year, are watching closely. So, too, are mandarins in Brussels and Berlin.

Syriza supporters paint a banner outside anelection rally in central Athens. Photograph: Orestis Panagiotou/EPA

From maverick marginals, the leftwingers have moved to centre stage, riding high on opposition to the austerity Athens has been forced to apply in return for €240bn in emergency bailout funds from the EU and International Monetary Fund. Their ascent poses the biggest threat to consensus politics in decades. Alexis Tsipras, Syriza’s firebrand leader, has promised to take an axe to the nexus of interests that have kept Greece’s rotten establishment alive – starting with the media-owning oligarchs who control so much of the country’s internal debate.

“The future has already begun,” he declared after parliament’s failure to elect a president triggered a constitutional provision for early elections.

Shock, anger and fear have marked Greece’s financial meltdown. But five years on, Syriza’s meteoric rise – and imminent electoral victory – also presages the passage of despair. Many Greeks will be inclined to vote for the insurgents as much out of hopelessness as helplessness.

“With our country’s economic crisis, our big opening has been to the decimated middle class,” Skourletis says. “In us they have found a voice.”

The radicals have come a long way from the time I would visit their headquarters back in the early 1990s.Then, conversation inevitably focused on intra-party disputes between Eurocommunists and the Stalinist KKE. Over tiny cups of Turkish coffee – gleefully provided as guests were so rare – Leonidas Kyrkos, the late Eurocommunist leader, would speak of the scandal-ridden nation’s need for “catharsis, ” amid warnings of its tendency to overspend, but bemoan the fact that his utopian views were shared by so few. That he would have a successor, who would emerge from school sit-ins and the anti-globalisation movement to be embraced not only by Greeks but the entire spectrum of Europe’s left, would undoubtedly have mystified him.

In many ways Skourletis personifies the tectonic shift. The son of a public-sector doctor, and owner of a successful company importing tools before the crisis hit, he has seen many of his friends destroyed by the fate that has befallen Greece.

“Like Greeks all over, they availed themselves of the loans that the banks were giving out so freely to buy houses and cars and, then, suddenly found themselves unemployed,” he says, wincing. “Because they are in their 50s, they are unlikely to ever work again, which means they have no prospect of getting a pension either. It’s tragic.”

Activists watch an interview with Syriza leader Alexis Tsipras newspaper at the party’s election centre in Athens last week. Photograph: Aris Messinis/AFP/Getty Images

Precisely because it has been untested by power, Syriza has also been able to count on the support of a younger generation disproportionately hit by job losses.

In the absence of open revolt, the anti-establishment party is regarded as the best form of resistance to policies that have caused a Depression-era recession, worse, analysts say, even than that suffered by the United States in the 1930s.

Although the Greek economy has begun to show the first signs of recovery – the result of rigorous efforts to balance the books by prime minister Antonis Samaras’s outgoing coalition – the effects of such momentous fiscal adjustment have been catastrophic.

GDP has contracted by more than a quarter, around 26% of the population remains out of work, and more than three million live on, or below, the poverty line. Tsipras, last week, likened the measures to “fiscal waterboarding”.

The appetite of Greeks for yet more drama is limited. Almost six years after the country was forced to come clean on the scale of its public spending, they are worn out by relentless cuts and tax rises and are visibly fatigued. Greece itself has been hollowed out. Athens, home to almost half of its 12 million-strong population, has become a casebook study of what happens to capitals when they go broke, its smashed pavements, unkempt parks, boarded up shops and ever multiplying beggars and homeless the tell-tale signs of its financial collapse.

In such a climate, Tsipras’s promise of a public spending spree has gone down well. Across the board, Greeks have welcomed his pledge to tackle the country’s “silent humanitarian crisis” by increasing the minimum wage, reducing taxes and hiring in the public sector. But the euphoria that accompanied past political sea-changes is unlikely to be evident. Many say they will be rooting for Syriza out of protest against the centre-right New Democracy and the centre-left Pasok, the two mainstream parties that,alternating in power for the past 40 years, have been blamed for Greece’s near economic death.

Aware that the vast majority want to remain in the eurozone, Tsipras, who turned 40 last year, has toned down his anti-European rhetoric. Gone are the references to “tearing up” the memoranda of conditions attached to the country’s rescue programmes. Last week he went out of his way to placate German taxpayers, saying that they had “nothing to fear from a Syriza government”.

“Our aim is not for a confrontation with our partners, to get more credits or a licence for new deficits,” he wrote in the economic daily Handelsblatt. “It is to stabilise the country, reach a balanced primary budget and end the bloodletting from German and Greek taxpayers.”

But the charismatic politician still says he has “Merkelism” in his sights. Ending austerity and writing off Athens’s monumental debt – at 177% of GDP the largest in Europe – remain priorities. And with creditors ruling out both, analysts say it will require a major kolotumba, or U-turn, on the part of the leader to avert a head-on collision. Earlier this month the European Central Bank added to the pressure with a stark warning that Greek lenders would be unable to tap funds if bailout conditions were dropped, raising the spectre of a bank run in the months ahead.

A free meal organised by the Athens municipality for elderly, homeless and needy people last Easter.Photograph: Panayiotis Tzamaros/Demotix/Corbis

“Tsipras is entrapped in his own rhetoric,” says Dr Eleni Panagiotarea, a research fellow at Eliamep, Greece’s leading thinktank. “To move from where he is now to pulling off the kolotumba will not only mean a loss of prestige but control over the various far-left factions in his party and, if that happens, it is going to be very difficult for him to get his own MPs to vote through legislation in the future.”

Maoists, Trotskyists, anti-capitalist activists and champagne-swilling ex-trade unionists, who once belonged to the socialist Pasok party, are among the 11 groups that are part of Syriza. At least 30% are militants who openly advocate dumping the euro in favour of the drachma. Tsipras moved up the ranks through Synaspismos, the Eurocommunist party that forms the alliance’s central plank. If he controls 60% of the MPs who are likely to be elected next Sunday, insiders say it would be a “huge achievement”.

“He is faced with a huge dilemma,” says Spyros Lykoudis, who spent more than 20 years in Synaspismos before abandoning the party in disagreement over the need to press ahead with reforms. “If he placates creditors abroad, he stands to lose his own constituency and if he doesn’t he risks bankruptcy.”

Lykoudis, who is now running with To Potami, a centrist party established last year, believes the best solution would lie in the formation of a coalition government.

“And our hope is that it is us who emerges as the country’s third biggest force and not the neo-Nazis in Golden Dawn,” he adds. “If reformers are in his government, it will act as a restraint and make it easier to take measures. As things stand, he is a populist who promises all things to all men.”

The charge that Syriza is composed of dangerous ideologues bent on turning Greece into a Marxist paradise is heartedly rebuffed by cadres.

Instead the leftwingers argue that the centre of gravity in politics has shifted so much to the right since the advent of Thatcherism that the party’s proposals now seem radical. “All the things that sound radical now were standard fare in the golden age of capitalism in the 50s and 60s,” says the economics professor Euclid Tsakalotos, Syriza’s shadow finance minister for the last two years.

Raised in Britain and educated at St Paul’s, the leading London private school, before going to Oxford, Tsakalotos, 54, insists that after years of being subjected to the brutal vagaries of the market, there are growing numbers across Europe who feel excluded from decision-making and the centres of power.

“We are only more radical in the sense that we have been influenced by the anti-global movement and believe in concepts of participatory democracy,” he adds. “The angst Syriza has caused is down to us challenging a system that can’t actually represent the interests of ordinary people.”

In the party’s smoke-filled headquarters, the leftwingers say they are gearing up for a fight. This is the closest they have come to power since the formation, almost 200 years ago, of the modern Greek state, and they are not going to surrender easily.

“Unlike the left elsewhere, we stopped arguing about Trotsky and Stalin and managed to bury our differences,” says the soft-spoken Christoforos Papadopoulos, a member of the party’s political secretariat. “That has been the secret of our success, and you can be sure that when we reach office we are not going to betray what we believe in.”

When the going gets tough, it is likely that Syriza will focus on clamping down on oligarchs and other vested interests to get by. One US cable, revealed by WikiLeaks, described the tycoons as “a small group of people who have made or inherited fortunes …  and who are related by blood, marriage or adultery to political and government officials and/or other media and business magnates.”

“What we will not be doing is making any kolotumbes,” says Papadopoulos, taking a mighty draw on his umpteenth cigarette.

A homeless man eats in the doorway of a closed shop in Athens. Photograph: Thanassis Stavrakis/AP

SYRIZA’S PROMISES

The party aims to end austerity by:
■ Giving free electricity to Greeks whose supplies have been cut off;
■ Providing food stamps to children;
■ Giving health care to the uninsured;
■ Providing a roof for the homeless;
■ Raising the minimum wage to €750 a month from under €500;
■ Introducing a moratorium on private debt repayments to banks above 30% of disposable income.

In addition, Syriza says it will call for Greece’s “unsustainable” €320bn euro debt load to be drastically reduced and interest repayments cut. It wants an international conference to be held on the issue in an echo of the treatment given Germany after the second world war.

It also wants to abolish the economic privileges enjoyed by the Greek Orthodox church and shipping industry, reduce military spending, raise taxes on big companies and set a 75% tax on incomes over €500,000.

Syriza can transform the EU from within – if Europe will let it

 

Syriza’s anti-austerity programme is more sensible than radical, and what Greece needs. But the EU is far from convinced
 

• 
• • Costas Lapavitsas
  • theguardian.com, Monday 29 December 2014 15.06 GMT

Presidential guards in front of the Greek parliament. Photograph: Kostas Tsironis/AP

The Greek parliament has failed to elect a new president and the country’s constitution dictates that there should now be parliamentary elections. These will be critical for Greece and also important for Europe. A victory for Syriza, the main leftwing party, would offer hope that Europe might, at last, begin to move away from austerity policies. But there are also grave risks for Greece and the European left.

The rise of Syriza is a result of the adjustment programme imposed on Greece in 2010. The troika of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) provided huge bailout loans, with the cost of unprecedented cuts in public expenditure, tax increases and a collapse in wages. It was a standard, if extreme, austerity package, with one vital difference: austerity could not be softened by devaluing the currency as, for instance, had happened in the Asian crisis of 1997-98. Greek membership of the euro had closed all escape routes.

Brutal austerity succeeded in stabilising Greece and keeping it in the economic and monetary union by destroying its economy and society. The budget deficit has been drastically reduced, the current account deficit has turned into a surplus and the prospect of default on foreign debt has receded. But GDP has contracted by 25%, unemployment has shot above 25%, real wages have fallen by 30% and industrial output has declined by 35%. The human cost has been immeasurable, amounting to a silent humanitarian crisis. Homelessness has rocketed, primary healthcare has collapsed, soup kitchens have multiplied and child mortality has increased.

Since the summer of 2014, the depression has been drawing to a close, helped by the strong performance of the tourist sector. Yet, the damage from troika policies is so severe that growth prospects are appalling. The weakness is manifest in foreign trade, which the IMF expected to act as the “engine of growth”. In 2014, Greek exports will probably contract, while imports began to rise as soon as the depression showed signs of ending. This is a deeply dysfunctional economy.

In the midst of this catastrophe, the troika is insisting on further austerity to achieve massive primary budget surpluses of 3% in 2015, 4.5% in 2016 and even more in future years. Its purpose is to service the enormous foreign debt, which has risen to 175% of GDP from about 130% in 2009. Astonishingly, the IMF still expects Greece to register average growth of 3.4% during the next five years – provided, of course, that it goes full speed ahead with privatisation, deregulation of labour and market liberalisation. The troika has truly embraced the economics of the absurd.

In 2010-11, the Greek people actively opposed the disastrous policies of the troika and its domestic allies, but failed to stop them. After 2012, however, as unemployment and poverty escalated, it became difficult to organise popular protest. Still, exhaustion with troika policies is so great that voters have turned in droves to the left, in the hope that Syriza will offer a better future.

Syriza promises first to achieve a substantial write-off of Greek debt and, second, to lift austerity by aiming for balanced budgets, instead of the surpluses demanded by the troika. It will reconnect families to the electricity network, provide food relief and shelter the homeless. It will take immediate action to reduce unemployment through public programmes. It is committed to lowering the enormous tax burden and to boosting public investment in an effort to accelerate growth.

There is nothing radical, much less revolutionary, in these policies. They represent modest common sense and would open a fresh path for other European countries. After all, Syriza has repeatedly declared its intention to keep the country within the economic and monetary union, and to avoid unilateral actions. There is little doubt that its leaders are committed Europeanists who truly believe that they could help transform the EU from within.

The trouble is that the EU is far from amenable to Syriza’s ideas. Germany’s exporters and banks have benefitted substantially from the euro and have no incentive to abandon austerity. Berlin has its plate full anyway as the eurozone is exhibiting renewed weakness, with France and Italy on the ropes. There is also Mario Draghi at the ECB,rambling on about quantitative easing, a policy that Berlin detests. The last thing that Germany would welcome would be Syriza and its programme.

A scaremongering campaign is likely in the coming weeks to deter Greeks from voting for the leftwing party. Should the campaign fail, a Syriza government can expect hostility from the EU, which is not short of weapons. Syriza’s programme is sensible and modest, but lacks secure funding. Greece also needs substantial finance to service its debts in 2015, perhaps up to €20bn. There are some debt repayments in the spring that might be manageable, but further repayments – €6.7bn – must be made in July-August, which will need fresh funding from abroad. And, needless to say, Greek banking would be rapidly asphyxiated if the ECB stopped providing liquidity.

A Syriza government will probably face an ultimatum to capitulate, perhaps by being offered some watered-down version of austerity. This would be a disaster for Greece and a major defeat for opponents of austerity in Europe. It is vital that Syriza wins and applies its programme without flinching, helped by international support. The battle lines are forming in Greece.

Mobile phone companies have failed – it's time to nationalise them

It may sound like off-the-wall leftiness, but there are clear and convincing arguments for a nationalised mobile phone network

• 
• • Owen Jones
  • The Guardian, Monday 11 August 2014

Mobile phone companies put profit before the needs of the consumer. Photograph: Alamy

Nationalisation is a taboo among the political and media elite, its mere mention guaranteed to provoke near-instantaneous shrieks of "dinosaur!" and "go back to the 1970s". Imagine the Establishment's horror, then, when a succession of recent polls found that nearly seven out of 10 Britons wanted the renationalisation of energy, and two-thirds of the electorate wanted rail and Royal Mail back in public hands. Even Ukip voters – those notorious bastions of pinko leftiness – overwhelmingly backed the renationalisation of key utilities. While our political overlords are besotted with Milton Friedman, on many issues the public seem to be lodged somewhere between John Maynard Keynes and Karl Marx.

Previously state-owned services are one thing: but what about the mobile phone network? Even the very suggestion is inviting ridicule. But if people are so keen for public ownership of rail, why is the case any weaker for mobile phones? They are a natural monopoly, and the fragmentation of the telecommunications network is inefficient. Their service is often poor because they put profit ahead of the needs of the consumer. And rather than being the product of a dynamic free market and individual plucky entrepreneurs, their technological success owes everything to the public sector. It might seem like barking leftiness on speed, but the arguments for nationalising phone networks are less absurd than they might appear.

The eternal irritation of any mobile phone user is the signal blackspot. They affect everyone. Even David Cameron has had to return early from his holidays in Cornwall because of problems with signal "not-spots". Nor is it only a problem for people in rural areas. Richard Brown lives at the top of a hill in Brighton, and he can't get a signal withVodafone, despite its database claiming excellent coverage. "So for £100 I bought a 'Sure Signal' device – or in other words paid £100 to enable Vodafone to deliver me the core service that I am already paying upwards of £30 a month for." It plugs into the router and drains power, but seems to make little difference.

In his south London flat, EE customer Ben Goddard's mobile phone almost always registers no bars. With missed calls from hospitals and family members, he's been forced to install a house phone. "Zero signal in east London," says fellow EE user Dom O'Hanlon. "No attempt to fix, help or offer customer service." EE seem to have abandoned its earlier incarnation as 'Everything Everywhere' because it was so widely mocked as 'Nothing Nowhere'. When Ben Parker switched from EE to Vodafone, he found that his signal did improve, but his data access died, forcing him to depend on Wi-Fi.

If you have tried to deal with the customer service arm of the mobile phone giants, then please do not read on, because you will only relive traumas you would rather forget. After Grace Garland was signed up to EE from her Orange contract, her 4G and internet access all but vanished for several months. Errors at EE's end left her being charged double, and its system believed she had run out of her data allowance, leaving her with no access to crucial work emails. "No one took my concerns seriously," she says. "They told me they had actually subcontracted a lot of their technical support to outside parties who can only be contacted by them by email, making everything slow and ineffectual." Of course, mobile phone companies do not provide detailed data about their national coverage, leaving customers to choose on the basis of factors such as price.

According to OpenSignal – a company that is ingeniously working out national signal coverage by tracking data from mobile users – the average British user has no signal 15% of the time. And here is where the point about a natural monopoly creeps in. Mobile phone companies build their masts, but don't want to share them with their competitors. That means that rather than having a network that reflects people's needs, we are constantly zipping past masts we are locked out of. In many rural areas, mobile phone companies are simply making the decision that there are not enough people to justify building more masts. Profit is prioritised over building an effective network that gives all citizens access.

 Signal failure … a woman struggles to make a call in Hythe, Kent. Photograph: Alamy

To be fair to the government, it is proposing action to compel companies to share masts. But OpenSignal's Samuel Johnson says that this would only cover phone calls and text messages, not data, and would reduce our time without signal to about 7%. Why not force them to share all data? "Well, it'd be bad for competition, because it would hit their profits," he says. Not only that, but even if the government's modest measures are implemented, the potential financial hit to mobile phone companies would deter them from clamping down on the final 7%.

Customers are ripped off in other ways. The former Daily Telegraph journalist George Pitcher has pointed out that the typical "free phone when you sign a long contract" offer is a scam. In a typical £32-a-month contract spread over two years, you're coughing up £768, even though the phone is worth just £200. Get a £15-a-month SIM card-only deal and buy a £10 mobile off eBay instead, he suggests, and you'll save £400. "Perhaps the mobile phone companies could be nationalised and given to the banks?" he concludes. Last part aside, Pitcher has it in one. And then there's the derisory cost to the company of sending snippets of data such as text messages – which can cost the user 14p a pop. Last year, Citizens Advice received a whopping 28,000 complaints about mobile phones, often from customers who could not be released from contracts even if there was no signal in their area.

Neither are mobile phones themselves triumphs of the private sector, or even close. "It's not far-fetched to suggest nationalisation," says economics professor Mariana Mazzucato, "because these companies aren't the result of some individual entrepreneur in the garage. It was all state-funded from the start." As I write this, I fiddle occasionally with my iPhone: in her hugely influential book The Entrepreneurial State, Mazzucato looks at how its key components, like touchscreen technology, Siri and GPS are the products of public-sector research. That goes for the internet, too – the child of the US military-industrial complex and the work of Sir Tim Berners-Lee at the state-run European research organisation Cern in Geneva.

"It's actually the classic case of economies of scale, or a natural monopoly, and the decision you'd have to make is whether it's one firm or the state running the whole thing," says Mazzucato. "When you chop it up, you lose the benefits of cost and efficiency from having one operator." Many network providers spend more money on share buybacks than research and development, retarding further technological progress in the name of profit. And then there's Vodafone, which has become one of the key targets of the anti-tax avoidance movement. It's cheeky, really: leave the state to fund the technology your business relies on, and then do everything you can to avoid paying anything back.

There are many reasons why a fragmented mobile phone network is bad for the consumer. Dr Oliver Holland of King's College London's Centre for Telecommunications Research sympathises with the idea of a nationalised network on technical grounds. This is how he explains it. Each mobile phone company is allotted a slice of the frequency spectrum. But at any given time, lots of customers belonging to one company may be using their mobile phones. "You will probably have a reduction in the quality of the service, because they're all competing for the spectrum." Customers belonging to another company may be using the service less at the same time, leaving their slice of the spectrum to go to waste when others need it. "If you had just one body, instead of dividing the spectrum into chunks, they can use it more efficiently," he says.

The case for nationalising mobile phone companies is actually pretty overwhelming. It would mean an integrated network, with masts serving customers on the basis of need, rather than subordinating the needs of users to the needs of shareholders. Profits could be reinvested in research and development, as well as developing effective customer services. Rip-off practices could be eradicated. It doesn't have to be run by a bunch of bureaucrats: consumers could elect representatives on to the management board to make sure the publicly run company is properly accountable. Neither does nationalisation have to be costly: Clement Attlee's postwar Labour government pulled it off by swapping shares for government bonds. So yes, it might sound far-fetched, the sort of proposal that lends itself to endless satire from the triumphalist neoliberal right. But next time you're yelling at your signal-free mobile phone, it might not seem so wacky after all.

Understanding Risk - Risk explained to a sixteen year old

By Girish Menon

Risk is the consequence one has to suffer when the outcome of an event is not what you expected or have invested in.

For e.g. as a GCSE student you have invested in getting the grades required by the sixth form college that you wish to go to.

The GCSE exam therefore is the event.

From an individual's point of view this event has only two possible outcome viz. you get the grades or you don't.

Your investment is time, money and effort in order to get the desired outcome.

The risk is what you will have lost when despite all your investment you did not get the desired grades and hence you are not able to do what you had wanted to do.

From a mathematical point of view since there are only two possible outcomes one could say that the probability of either outcome is 0.5.

Your investment with spending time studying, taking tuitions, buying books.... are to lower the probability to failure to as low a figure as possible.

Can you lower the probability of failure to 0? Yes, by invoking the ceteris paribus assumption. If all 'other factors' that affect a student's ability to take an exam are constant, then a student who has studied all the topics and solved past papers will not fail.

Else, some or all the 'other factors' may conspire to bring about a result that the student may not desire. It is impossible to list all the 'other factors' and hence one is unable to control them. Hence, the exam performance of even a hitherto good student remains uncertain.

If the above example, with only two possible outcomes, shows the uncertainty and unpredictability  in the exam results of a diligent student then one shudders to think about other events where all the outcomes possible cannot be identified.

Let's move to study the English Premier League. Here, each team plays 38 matches and each match can have only three outcomes. When one considers picking a winner  of the league one could look at the teams, the manager etc. But, 'other factors' such as injury to key players, the referee...... may scupper the best laid plans.

When one looks at investing in the shares of a company one may study its books of accounts. Assuming that these books are accurate, this information may be inadequate because it is information from the past and the firm which made a huge killing last season may now be facing turbulent conditions of which you an outside investor maybe unaware of. The 'other factors' that may impinge on a firm's performance will include the behaviour of the staff inside the firm, behaviour of other firms, the government's policies and even global events.

Yet, as a risk underwriter one has to take into account all of these factors, quantify each factor based on its importance and likelihood of happening and then estimate the risk of failure. The key thing to remember is that the quantitative value that you have given each factor is at best only a rough estimate and could be wrong. Which is why every risk underwriter follows Keynes' dictum, 'When the facts change, I change my mind'. George Soros, the celebrated investor, has been rumoured to say no to an investment decision that he may have approved only a few hours ago.

Even if Keynes and Soros may have changed their minds on receipt of new information I am willing to bet that their investment record will show many wrong decisions.

So if the risk in investment decisions itself cannot be accurately predicted imagine the dilemma a politician makes when he decides to take his nation to war.

Hence the best way sportsmen, businessmen and politicians overcome the uncertainty of decision making is by posturing. Pretending that you are the best and everything is within your control. They hope that this will scare away the challengers and doubters and victory becomes a self fulfilling prophecy. Alas! It unfortunately does not work every time either. 

(The author is a lecturer in economics.)

Let's rethink the idea of the state: it must be a catalyst for big, bold ideas

As George Osborne envisages a smaller state, economist Mariana Mazzucato argues instead that a programme of forward-thinking public spending is crucial for a creative, prosperous society. We must stop seeing the state as a malign influence or a waste of taxpayers' money

• 
• • Mariana Mazzucato
  • The Observer, Sunday 15 December 2013

Bright spark: a government that ‘thinks big and makes things happen’ will also serrve as a catalyst to the private sector. Photograph: David Burton /Alamy

In his epic book, The End of Laissez-Faire (1926), John Maynard Keynes wrote a sentence that should be the guiding light for politicians around the globe. "The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all."

In other words, the point of public policy is to make big things happen that would not have happened anyway. To do this, big budgets are not enough: big thinking and big brains are key.

While economists usually talk about things that are not done at all (or done inadequately) by the private sector as "public goods", investments in "big" public goods like the UK national health service, or the investments that led to new technologies behind putting a "man on the moon", required even more than fixing the "public good" problem. They required the willingness and ability to dream up big "missions". The current narrative we are being sold about the state as a "meddler" in capitalism is putting not only these missions under threat, but even more narrowly defined public goods.

Public goods are goods whose benefits are spread so widely that it is hard for business to profit from them (or stop others profiting from them). So they don't attract private investment. Examples include transport infrastructure, healthcare, research and education.

Even if you're an avid free-marketeer you can't avoid benefiting, directly and indirectly, from such public investments. You gain directly through the roads you drive down, the rules and policing which ensure their safety, the BBC radio you listen to, schools and universities that train the doctors and pilots you depend on, parks, theatre, films and museums that nurture our national identity. You also gain, indirectly, through enormous public subsidies without which private schools, hospitals and utility providers would never be able to deliver affordably and still make a profit. These are conferred as tax breaks, and provision of vital skills and infrastructure at state expense.

While social welfare is relentlessly trimmed and targeted, corporate welfare grows inexorably, as business widens its relief from the taxes that fund public infrastructure (while tax credits top-up its less generous wage packets). And the non-appropriable benefits of knowledge – costly to produce, cheap to acquire and use once published – spread the influence of public goods much wider. Nuclear fusion, fuel cells, asset-pricing formulas and genome maps are discoveries for all, not just one company. But it now seems like the doubters, those who contest the idea of "public goods", have won the contest. The state's provision of many of these goods – notably transport, education, housing and healthcare – is being privatised or outsourced at an increasing rate. Indeed privatisation and outsourcing are happening at such a rapid pace in the UK they are practically being given away – as the sale of Royal Mail at rock bottom prices revealed recently – denying the state a return for its near-century long investment.

Yet because we are told the state is simply a "spender" and meddling "regulator", and not a key investor in valuable goods and services, it is easier to deny the state a return from its investment: risk is socialised, rewards privatised. This not only eliminates any return on public investment but also destroys institutions that have taken decades to build up, and rapidly erodes any idea of public service distinct from private profit.

When public goods are privatised they lose their "public good" nature: it does become possible to profit from distributing mail, running trains, renting out homes and providing education. We're continually promised that, due to efficiency gains and innovations prompted by the profit motive, public goods can be delivered more cheaply and effectively by the private sector. All this while still giving their providers a decent profit, so that more is invested.

Has privatisation of UK rail provided lower prices, more innovation and investment? Has contracting-out prison security to G4S made that system more efficient and high quality? Have outsourced NHS services provided the taxpayer with higher quality healthcare that's still free of charge and assigned on merit? Users' impressions and regulators' performance indicators give at best a mixed signal on service quality. Private firms' commercial confidentiality – often a stark contrast with the right-to-know approach to public enterprise – makes it hard to identify or measure any changes in efficiency.

So the state is robbed of its deserved returns of investment, and public services are worsening – but is the state at least relieved of the associated costs and financial burden? No. What's very clear is that while private profits are now being made, public subsidy has not disappeared. The UK government explicitly subsidises its "privatised" utilities, with net transfers amounting to (among others) more than £2bn annually for train operating companies, and £10bn in investment guarantees alone for new nuclear power station builders (these, ironically, include other countries' state-owned utility firms – willing to advance their capital under the generous long-term price arrangements offered by the government, while their privatised UK counterparts like Centrica dismiss these as too risky and return their cash to shareholders).

Private companies can receive further implicit subsidies through investment guarantees and tax breaks; ad hoc assistance (such as meeting energy firms' decommissioning costs, and taking over pension liabilities to enable privatisation, as with Royal Mail and the remnants of the coal industry); rules that enable the circumvention of corporate taxes that are already below income-tax rates (and falling fast); and the assurance that the state will step back in to repossess (without penalty) any operations the private sector finds too expensive, as with Network Rail and the East Coast train-operating franchise.

But in the US, UK and all across Europe, where it's almost universally argued that today's governments are too big, these subsidies are rarely called into question. The debate focuses on the need for public debt levels to come down. And since taxes are judged to be too high – on the basis of very unclear arguments regarding incentives – debt reduction ends up relying on massive public-spending cuts. Growth will supposedly be stimulated by reducing the size of the public sector though privatisation and outsourcing – alongside the eternally-promised reduction of tax and "red tape", which is seen to be hindering an otherwise dynamic private sector.

Typically, the last UK budget focused on targeted tax reductions which are more fairly termed "tax expenditures", lifting a "burden" from companies that other sectors (mainly public services) will have to absorb. These include a drop in corporation tax to 20% from April 2015 (explicitly designed to undercut the rest of the G20), more reliefs from national insurance, and reductions in regulation – always hailed as reducing cost, despite the financial sector's recent warning on where those short-term savings can later lead.

Is tax too high? In the US, the top marginal income tax rate was close to 90% under Republican president Dwight Eisenhower – widely recognised as reigning over one of the highest growth periods in US history. Today the total US tax bill is the lowest it has ever been. The spending cuts about to hit the US – the infamous "sequester", which will damage institutions ranging from Nasa to social services – would not be needed if the US tax bill (24.8% of GDP) were only four percentage points lower than the OECD average (33.4%), instead of eight points.

Yet tax cuts usually achieve no discernible increase in investment, only a measurable increase in inequality. This is because what actually guides business investment is not the "bottom line" (costs, as affected by tax) but anticipation of where the future big technological and market opportunities are.

In the UK, Pfizer did not move its largest R&D lab in Sandwich, Kent to Boston due to lower tax or regulation but due to the £32bn a year that the US National Institutes of Health (NIH) spends on the bio-medical knowledge base that feeds them. Equally, although it was the National Venture Capital Association that in the mid-1970s negotiated huge reductions in US capital gains tax (from 40% to 20% in just six years), venture capital was actually following the footsteps of strategic public funding. In biotech, it entered the game 15 years after the state did the hard stuff.

And when the UK's Labour government reduced the minimum time for private equity investment to qualify for similar tax breaks from 10 to two years,it made venture capital even more short-termist, increasing golfing time not investing time. For the private sector, opportunities lie not in the creation of major new knowledge and technology but in the returns on investment in "intellectual property" that others have commissioned and not yet commercialised. Profit flows from privately capturing the "external benefits" conferred by public goods, when the public sector continues to underwrite them

The challenge today is to bring back knowledge and expertise into government that can drive the big missions of the future. Yet current de-skilling and de-capacitating government will not allow that. As I discuss in my new book, The Entrepreneurial State:debunking private vs. public sector myths, all the technologies that make the iPhone so smart were indeed pioneered by a well-funded US government: the internet, GPS, touch-screen display, and even the latest Siri voice-activated personal assistant.

All of these came out of agencies that were driven by missions, mainly around security – and funding not only the upstream "public good" research but also applied research and early-stage funding for companies. New missions today should be expanded around problems posed by climate change, ageing, inequality and youth unemployment. But while it's great that Steve Jobs had the genius to put those government technologies into a well-designed gadget, and great, more generally, for entrepreneurs to surf this publicly funded wave, who will fund the next wave with starved public budgets and a financialised and tax-avoiding private sector?

As the late historian Tony Judt used to stress, we should invent and impose a new narrative and new terminology to describe the role of government. The language being used to describe government activity is illuminating. The recent RBS sale was depicted as government retaining the "bad" debt, and selling the "good" debt to the private sector. The contrast could not be starker: bad government, good business – a needless inversion of the public good.

And public investments in long-term areas like R&D are described as government only "de-risking" the private sector, when actually what it is doing is actively and courageously taking on the risk precisely where the private sector – increasingly more concerned with the price of stock options than long-run growth opportunities – is too scared to tread. Once the entrepreneurial and risk-taking role of government is admitted, this should result in a sharing of the rewards – whether through equity of retaining a golden share of the patent rights. By privatising public goods, outsourcing government functions, and the constant state bashing (government as "meddler", at best "de-risker") we are inevitably killing the ability of government to think big and make things happen that otherwise would not have happened. The state starts to lose its capabilities, capacity, knowledge and expertise.

Examples that counter this trend – and language – should be celebrated. When the BBC invested in iPlayer – the world's most innovative platform for online broadcasting – instead of outsourcing it, it went against the grain. It brought brains and knowledge into a public sector institution. When recently the Government Digital Services (GDS) – part of the UK's Cabinet Office – wanted to create its own website, the usual solution was to outsource it to Serco, a private company that has recently won many government contracts (even Obamacare insurance work).

Dissatisfied with the mediocre site that Serco offered, GDS brought in coders and engineers with iPlayer experience, who went on to produce an award-winning websitethat is costing the government a fraction of what Serco was charging. And in so doing also made government smarter – attracting, not haemorrhaging, the knowledge and capabilities required for dreaming up the missions of the future.

To foster growth we must not downsize the state but rethink it. That means developing, not axing, competences and dynamism in the public sector. When evaluating its performance, we must rediscover the point of the public sector: to make things happen that would not have happened anyway.

When the BBC is accused of "crowding out" private broadcasters, the difference in quality of the programmes is considered a subjective issue not worthy of economic analysis. Yet it is only by observing and measuring that difference that we can accurately judge its performance. The same is true for the ability of public sector institutions not only to subsidise pharmaceutical companies but actually to transform the technological and market landscape on which they operate.

The public sector must produce public goods, and through the creation of new missions catalyse investment by the private sector – inspiring and supporting it to enter in high-risk areas it would not normally approach. To do so it requires the ability to attract top expertise – to "pick" broadly defined directions, as IT and internet were picked in the past, and "green" should be picked in the future. Some investments will win, some will fail. Indeed, Obama's recent $500m guaranteed loan to a solar company Solyndra failed, while the same investment in Tesla's electric motor won big time – making Elon Muskricher.

But as long as we admit the state is a risk-taking courageous investor in the areas the private sector avoids, it should increase its courage by earning back a reward for such successes, which can fund not only the (inevitable) losses but also the next round of investments. Instead, calling it names for the losses, ignoring the wins, and outsourcing the competence and capabilities, is ridding it of the courage, ability and brains to create the missions, hence opportunities, of the future. And without brains, all government will be able to do is not make big things happen but simply serve a private sector that is concerned only with serving itself.