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It’s NOT the economy stupid.

In the run up to the 1992 US election Bill Clinton’s campaign strategist James Carville coined the phrase “It’s the economy stupid” as an aide memoir for campaign staff. It is credited by some with playing a significant part in Clinton’s election. At the time such a brief shorthand probably had a great deal of relevance. There is however a question about its potential to drive voters in the next UK election.

Back in 1992 it was probably possible to look back and see a clear and positive link between economic progress as measured by GDP and increasing standards of living. In truth even then it may be argued that these things were beginning to diverge however the picture was not clear.

Since then two broad changes have taken place which challenge the previous linkages. Firstly, there are all kinds of issues about the extent to which GDP is an effective measure of economic activity. In a “weightless” economy more and more economic activities are missed by the standard definitions of GDP which were created in a very different time.

Further, as David Cameron has pointed out there are issues about “happiness” and technological evolution that are simply not considered by GDP but which are of increasing interest to policy makers.

Minor definitional changes can change significantly the picture of the economy that GDP produces. The recent changes demanded by the EU including income from prostitution and drugs were estimated to add £10bn to the UKs’ GDP in 2009 (I would love to see the tax returns claiming these expenses!). Such changes could transform what was previously seen as a period of negative growth as positive with all the political consequences that flow from this. No wonder predicting the future is difficult when the past doesn’t keep still!

The other major change is that the link between economic growth and general increase in well being and wealth appears to have been broken. Over the past thirty years median incomes have made little progress indeed in the US have declined in real terms.

The Great Recession has accelerated a. Process whereby the plight of the vast majority of those in work has got significantly worse as their pay has been held at below inflation levels, part time working and under-occupation have increased, zero hour contracts have become endemic in some industries notably retail and hospitality, and a whole generation of graduates are languishing in jobs that make no use of the expensive education they have no chance of being able to pay for.

It is because of this there was little rejoicing in the general population when growth returned to the economy. The Chancellors’ claim that fiscal austerity was working (wrong for so many reasons) sounded a bit like the claims of the surgeon that the operation was a great success it was just a shame the patient had died!

Increasingly people are asking who economic growth is for? As the economy gets better will our living standards improve? At the same time they see some for whom 6 years of public austerity have seen massive increases in private wealth.

There is a lot of history going on at the moment. Western politics in the US, UK and Europe are experiencing a general malaise with a worrying level of cynicism growing about what are called the political elite. The Tea Party, UKIP, the Scottish referendum, a host of ultra right and left wing parties across Europe are symptoms of deeper issues which have their roots in a decline in the living standards of people and little belief that they will change when the economy recovers. This is a toxic mix.

If politicians continue to the old picture of the economy they are set to fail and add to the sense of their being out of touch. They need to address wider issues about the distribution of wealth which present some of the real “difficult choices” that the Prime Minister and the Chancellor so often talk about.

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What is good about the UKIP results?

For the main UK political parties the 2014 UKIP local election results are a challenge which they are unsure how to deal with. Do they cast UKIP as racist and risk being attacked as out of touch with the problems of ordinary people. Or do they attempt to recognise the valid concerns UKIP is thought to have identified? When asked about UKIP politicians from all the main parties choose their words with the same level of lawyerly care that Bill Clinton did when asked about his relationship with Monica Lewinksy. They also look about as comfortable as he did.

Crudely one might ask whether UKIP has tapped into a rich vein of base racism which they transform into a respectable concern about the strain on public services and dilution of British culture? Clearly they do seem to have found a mother load of electoral support however I believe it is more profoundly driven than a concern with too much immigration. I fear there is a much deeper malaise in British society, one which is connected to global as well as national trends where fears about immigration are symptoms not causes. Trends which are making life more and more uncertain for millions of people.

For something  over thirty years now there has been a process of growing inequality in the UK. Thomas Piketty’s recent book charts what he sees as a global process concentrating wealth and income in the hands of fewer and fewer individuals. This has largely been at the expense of the middle classes whose living standards have at best stagnated over this period of time.

One of the processes which is seen to have contributed to this concentration is the development of the “winner take all” model in more and more areas of life, and the growth of the “super managers” particularly in the financial sectors of the economy. In  the 1970’s the top 1% of earners captured 10% of national income in the US, now their take is around a third.

It is, of course, this highly paid cadre of super intelligent financiers who developed the sophisticated financial instruments which were intended to diversify away risks on securitised loans. Collateralised Debt Obligations, Credit Default Swaps and such like. For those of us that did woodwork the clue was in the names of these instruments – “debt” and “default”. At bottom if you lend money to people who cannot afford to pay it back the wheels are going to come off however complicated the financial alchemy is you build upon that foundation.

When the wheels did come off in 2007/08 the groups who had to pay the price were the taxpayers, by that I mean the PAYE tax payers and more specifically the ones without an army of lawyers and accountants between them and the inland revenue. Western economies were brought to their knees, hundreds of billions of pounds had to be provided to bail out financial institutions and the term austerity was elevated to a policy reigning back the welfare state that had done so much to improve equality over the 20th century. Contrition amongst those who were most responsible was thin, accountability virtually non existent. No sooner had the crisis been stemmed than bankers were telling us that we needed to “move on”. “Moving on” meant getting back to annual bonuses equivalent to the lifetime earning of those on the average wage.

Even as it became clear that the people who had created these financial weapons of mass destruction had failed to consider the “black swan” risks that might be associated with them, and those that had allowed them to be applied at scale had very little understanding of what they were or how they worked, the level of public outrage appeared strangely muted.

Since the credit crunch scandal after scandal has come to light as we discover that LIBOR, Forex and Gold markets were rigged. Unnecessary insurance products sold to millions of people, sophisticated interest rate swaps sold to businesses which were then driven into liquidation by the rising costs of the products and in some instances, it is claimed, bought at distressed values by the very banks that sold them the swaps. Banks were even found to be laundering the money of drug barons!

Even after all this the impetus for re-regulation of the banks is being undermined by arguments about the need to protect one of our most important industries, we must not kill the golden goose. Beggar-my-neighbour tax reductions for corporations and those on ultra high salaries we are told will reward talent, inspire innovation and attract jobs to the UK. Whilst it is rarely challenged in the popular press it should not be assumed that the population miss the fact that whilst rich people need more money to be motivated poor people need less. And it is strange that lower taxes should inspire companies to come to Britain when they arrange their affairs so that they don’t even pay them.

One might think that the public are suffering from shock fatigue. You worry that if financial analysts were found to be discerning the trends in the markets from the entrails of freshly sacrificed babies it would generate no more than a weary shake of the head. The stoicism with which the cuts to the welfare state have been accepted must have surprised even George Osbourne. The limited challenge that has been mounted to date should not, however, be seen as acceptance. These issues are moving the tectonic plates of public opinion. On the surface little may appear to be happening but deeper there are strains building which will at some point be released.

Ukip have created a fault line. They speak to the pain that the population are experiencing now and the deep unease that they feels about the future. For the elderly it is the fact that their savings are being eroded by effectively negative real interest rates, for the middle aged the date they can retire is receding, for those who work in the public sector redundancy looms, for those in the private sector their terms and conditions worsening with zero hour contracts,  all are finding their incomes declining in real terms, and young people if they can get a job certainly cannot get a house in large parts of the country.

To change my metaphor, there is a lot of tinder lying around and Ukip are providing a spark. Furthermore I think the major parties should not assume that the first past the post voting system for the 2015 general election will douse the Ukip torch. People are hurting and want out and Ukip seem to be offering them a route. Ironically they are tapping in to precisely what Nick Clegg tapped into 4 years ago.

This is not just an issue in the UK. It might seem strange to put UKIP, Occupy Wall Street, the Tea Party, and sundry proto fascist and extreme left groups on the continent together but they are all expressions of growing frustration with the way the economy is being shaped and the social and political consequences of this. The catalyst may be immigration but as I have argued the causes are far more pervasive and deeply rooted. Unless these are addressed closing our borders will provide a temporary and unedifying distraction. To be clear Ukip does not have the answer indeed they are not even addressing the right question.

Technology and globalisation are setting life defining challenges for us. Some argue that these are forces which it is pointless, indeed counterproductive, to try to shape. They accept they can often cause “dislocation” but go on to argue that the evidence from the industrial revolution and the developing economies is that eventually everyone is better off. Unfortunately, there are increasing signs that innovation is not always tied to productivity increases nor grow to the increase in new quality jobs.

One example,  I accept crude, of the future we may face is provided by Citigroup. They have advised clients to structure their investment portfolios around the growing consumer power of the super rich. They think “…the world is dividing into two blocks – the Plutonomy and the rest.” They see the economy as an hourglass with a smaller and smaller number of super rich consumers of luxury items,  (yachts and jets) at the top. And for a the rest…? The future is Poundland.

This picture of the future is not good for anyone. What we lack are politicians that have the nerve to articulate a different vision. One which challenges some very powerful vested interests and indeed at times contradicts some of the bar room certainties of public opinion. To be clear, I believe, a future which needs to remain committed to a free market system with private property rights and inequality of rewards. However, inequality within bounds that are rationally debated. The clock is ticking for a considered and structured response to these issues the alternatives are in no ones interest.

Back to where I started, what on earth can be said in favour of people voting for Ukip?  Grasping a positive from this it shows that, despite regulations and laws being made which seem to be tailored in the interests of the minority, despite the obscene salary levels being paid to an industry that nearly destroyed the western economy, despite the frailties and venality of some of todays politicians some people still have faith in democracy.  From what I have said it will be clear that I think the faith in Ukip is totally misplaced however the recourse to democracy when you are hurting is something we must strive to support.

 

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Who Benefits?

For the past couple of years the Institute for Fiscal Studies has published “A Survey of the UK Benefits System”. The url for the document can be found at the end of this post. Whilst it is understandable that this document will have a limited readership, it is not judged to set the pulse racing, it deserves to be read much more widely.

Source: IFS Briefing Note BN 13. James Brown, Andrew Hood. November 2012

Source: IFS Briefing Note BN 13.
James Brown, Andrew Hood. November 2012

For those who know a good deal about the benefits system in Great Britain the amount of benefit paid to the various need groups will be quite familiar. For those whose knowledges has been formed from the political debate around benefits it might come as a bit of a surprise. It is strange for example that so much of the debate about the cost of benefits relates to the unemployed. The pie chart to the left shows benefits for unemployed people amounts to 2.57% of the total benefits bill. This includes job seekers allowance, job grant, work credit etc. What is perhaps more interesting is the fact that 21% of benefits go to those who are actually in work. It is strange that there is not more political debate about the need for the state to subsidise employment in this way.

By far the largest recipients of benefits are the elderly and the largest single benefit they receive is the basic state pension and this on its own accounts for almost 29% of benefit expenditure. When added to other items like additional state pension, pension credit, winter fuel allowance etc. the total percentage of benefits accounted for by payments to the elderly are 42%. This of course is set to rise significantly as the baby boom generation hit retirement age.

The IFS report provides some light in an area of debate that is more characterised by heat and should be required reading for politicians of all parties. For those interested the full report can be viewed at: http://www.ifs.org.uk/bns/bn13.pdf

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Housing Technology 2013

Attending conferences has a number of benefits, one of them is to give you a quick overview of what is happening in an area of activity so that you can assess how you compare with others. The fourth Housing Technology Conference in Oxford was no exception. It was interesting to speak to other delegates from housing associations to hear what they were engaged in, and reassuring to hear a familiar list of current IT projects. Mobile working, business information systems, customer relationship management (CRM) were the most mentioned. More generally there was a lot of talk about the increased importance of IT in a world where resources are declining. Automation of functions, channel shifting to cheaper, on-line transactions were much discussed. It was noticeable however that in most of the discussions of these things there was little little quantitative analysis. There was talk about improving the service to the customer with CRM and improving the efficiency of staff by having all the information they needed in order to deal with a customer inquiry accessible in one place. Prima facie this should raise productivity freeing resource to be deployed elsewhere or saved, but often this was left as a prima facie assumption rather than being specified in any detail.

Of all the sessions I attended, and I went to as many as I could, there was only one which had a very clear quantitative approach to benefits and measurable outputs and outcomes, this was the one done by Adactus. Ironically, it was not about the introduction of some new piece of IT equipment it was about deploying an Access Database to the analysis of cost and productivity. In essence it was about adopting the analytical standpoint of Vilfredo Pareto, the Italian economist and rigorously following this through. Pareto’s essential insight has become known as the 80/20 rule. This suggests that if you analyse data about costs you are very likely to find that 80% of your costs are generated by 20% of your customers. If you doubt this try analysing the most expensive 20% of your stock in relation to response repairs and see what percentage of the response repairs budget it takes.

Adactus set themselves the task of identifying who were their most expensive tenants. To do this they established an access data base and a mechanism for analysing costs to customers. Obviously, this dealt with response repair costs but it also got at other management costs including staff time to collect arrears, investigate anti social behaviour and so on. From this they produced a list of their 100 most expensive tenants each month. This provided a way of then more effectively targeting resources on what was generating the most costs to the organisation. Importantly, Adactus did not see these 100 tenants as their “worst” tenants. They were simply their most expensive and the cause of the cost might have nothing to do with the behaviour of the tenant, it may be about an unidentified structural issue with a property.

Not content with this Adactus went on to use the same approach to analyse the productivity of staff. Again, not using some sophisticated new piece of kit but with the same basic Access Database. Again, monthly information was produced about the productivity of staff based on measurable outputs giving an objective assessment which could be used in 1:1 meetings and annual reviews. Because the information was generated by a central team there was no question of managers bias or preference for some people over others. Objective data provides a fair and transparent way of measuring performance.

All of this activity was illustrated with examples of cost reductions and the overall impact was an improvement on the bottom line from c£1m profit to c£8m profit.

Now, it is of course a truth universally recognised that when projects are reviewed the positives are very much accentuated and the negatives are discreetly forgotten. Furthermore, it is not unknown for IT projects which fail to deliver their original outcomes to have these redefined and thus success is plucked from the jaws of failure. In the case of Adactus, a number of other things were mentioned as being implemented at the same time as the above, notably the establishment of a telephone based customer contact centre, with a programme of local office closures. These would clearly have impacted on the cost base of the organisation.

Having said all this, what was very impressive about the Adactus approach was that they had started with question, not a solution. Having set out the question they considered how to address it in the most straightforward manner using technology that has been around forever in IT terms. They used this to transform data into useful information about their cost structure and their productivity levels.

To date many organisations have used increasingly sophisticated technology to capture more and more data. Few have really made the next step to transform that data into useful information which can be used to drive the business. Adactus seem to have taken that step and should be applauded for it.