Blame the Banks for the Arab Spring and £1.50 Petrol

Everyone needs to make a little money, can’t fault anyone for that, but when your line of business results in a perversion of a free market, over inflation of the prices of essential commodities, starvation and food riots and the indirect deaths of hundreds of thousands it might be time to reconsider your actions.

A toxic mix of speculators and long-term hedgers are flooding the commodities market, especially after the 2008 financial crash. The collective trillions of dollars they can pump into the food or oil markets has completely overwhelmed any hint of the effects of supply and demand and have caused unprecedented spikes in the price of both commodities. In their search for a quick buck the banks are destabilising the entire world, making the two most vital commodities for human survival in the modern world more expensive than we can afford.

The insight into global food prices was gleaned from the research team under network theorist Yaneer Bar-Yam of the New England Complex Systems Institute, they were looking for reasons behind the two massive spikes since 2007 where food prices rose over 50% in a year. Last year his team created models for predicting the UN Food and Agriculture Organisation’s food price index using a number of different inputs.

Traditional analysts suggest that only standard supply and demand effects cause price rises, for example droughts, or crop failure decreasing supply and rising demand in India and China. But Bar-Yam’s model found little correlation between these kinds of effects. They put the price spikes down to two factors: commodity speculators cause the short term spikes and the conversion of agricultural land from food to bio-fuel production causing a long term rise in prices. Their results were further validated when their 2011 model correctly predicted the price fluctuations throughout last year and early 2012.

Worryingly Bar-Yam and his team are warning that another large price spike, larger than any we’ve seen before, is going to occur towards the end of the year unless the situation is rectified. “When the ability of the political system to provide security for the population breaks down, popular support disappears. Conditions of widespread threat to security are particularly present when food is inaccessible to the population at large,” says Bar-Yam. Another spike could erase any meagre stability the Arab Spring countries have won, and send many others into an uprising.

Compounding the problem is that a similar picture is emerging in the oil markets, a flush of speculative money is driving prices higher and higher even while supply increases and demand drops. Between 2003 and 2008 there was a 2,300% increase in the amount of money going into commodity speculation, from $13bn to $317bn. Oil analyst Chris Cook suggests that the largest spike we’ve seen, in the run up to the 2008 crash was the flooding of the market with investors looking to get out of the unstable housing market. When prices plummeted afterwards in late 2008, they were brought back up by overinvestment by oil producing governments looking to get the oil price up to a level which was profitable, that bubble remains to this day and looks set to rise even higher than in 2008.

The result is an unstable market, prone to massive price swings. This affects the consumer, businesses who rely on transport and energy to survive and people trying to travel to work, but also the producers while they may benefit from shorter term price rises, ultimately a fluctuating oil price discourages investment in new rigs and pipelines which will cause a severe supply shortage in 5-10 years.

Fortunately there were people that realised after the 1930’s great depression that people playing fast and loose with essential commodities was probably a bad thing and outlawed it. Unfortunately early in the 1990’s most major banks applied to get themselves special (and secret) exemptions from that law and have been playing havoc with commodities ever since, after the crash made stocks and shares look even less attractive the problems and price spikes have only gotten worse. Whereas it is recommended that 70% of the market should be traditional hedgers and only 30% risk-taking speculators, currently the split is 15% hedgers and 85% of the money swilling around the system from short term speculators.

This imbalance is the perfect example of how fucked up the finance sector’s priorities are and how much damage they can cause in their endless pursuit of vast piles of cash. Instead of doing responsible, socially productive work investing in businesses and helping along the economy they’d rather cook up some sweet-heart deal with BP to manipulate oil prices or go on a feeding frenzy in the food markets and make sure that there are an extra million or so people that aren’t going to be able to eat that day.

How many times do governments need to be shown that market forces are a terrible way to organise an economy? Regulating them might hurt their profits, but it makes them less liable to the insane spending sprees that end with government bailouts and reduces the social messes the banks cause like mass unemployment from lack of investment in UK businesses, or having to give food aid (at tastily inflated prices of course) to half the world once Goldman have made it impossible to live. As it stands the banks are there solely to make money, and we’re surprised when they do so regardless of the costs.

Privatise the Roads! Privatise Everything!

Is nothing sacred to the ConDem Coalition? After the news that the NHS is facing being cracked open to allow private companies to feast on the gobs of cash inside, that the taxpayers are paying companies to get people back into work, to assess whether people are really too sick to work, that we nearly sold off all our forests and even the police forces are going to be outsourced to security firms, maybe the fact that the roads are the latest to be privatised in all but name shouldn’t be too much of a surprise.

Ahead of the budget Cameron has announced a new plan to attract private investment in UK infrastructure, it seems as if in response to Vince Cable’s assertion that the Coalition have as of yet failed to create a solid plan for growth. But critics of the scheme say that it is nothing more than a revision of the Public Private Partnerships, later re-branded as PFIs, and will eventually cost the taxpayer more than they ever gain because of a desperate attempt to raise money for investment “off the balance sheet”.

The new plans will have companies bidding for leases of the 3% of Britains key motorways and trunk roads for something like 30 to 50 years. The government is keen to stress that it is not privatisation because they retain the ultimate ownership of the infrastructure. Essentially the government hands over a bit of road to a private company, they stump up the money to carry out expansion, improvement and maintenance and in return the government diverts a proportion of the Vehicle Excise Duty their way until the end of the contract. The idea is that investors will get a near guaranteed return on their investment and the government gets a new road.

Further incentives towards building are in place, in that if new roads are built and extra capacity can be added, the companies are allowed to introduce tolls. But you can almost be certain that at some point in the plan’s three or four decade lifetime investors will begin wheedling the government for more ways to fleece road users. Just look how long the cap on private care in the NHS lasted.

The model for this pseudo-privatisation is supposed to be that model of efficiency, the water utilities. This is the industry that David Hall calculates would be 12% cheaper per household if it were still in public hands. The industry whose lack of investment and massive remuneration for it’s directors means that it has chronic leaks, a lack of storage and still prices have risen by 50% since its takeover.

Questions have also been raised as to who will actually be investing in these projects. The plan is to alleviate the “ridiculous” situation where foreign investors are ready and willing to put money into the UK but British equivalents are not. Yet George Osborne has been urging the Chinese government and Middle Eastern oil barons to invest. Strange to think that our road taxes will be propping up totalitarian regimes and shady businessmen for decades to come, right?

And for what? A one time lump sum of cash to plug our nation’s balance sheet in return for ceding control over what seems like one of the last vestiges of the country the government actually has control over. The argument for the scheme is insane. The government itself can get access to the money for investment for next to nothing, 50 year indexed gilts have a yield of 0.2% yet if the government are going to attract any investment from the private sector they’ll need to be paying out a return of something more like 5-10%, not to mention all the other goodies and sweeteners they’ll have to fork over.

This obsession with keeping down the deficit is what caused the PFI catastrophe. So long as the money isn’t obviously adding to the size of the deficit during the Coalition’s term in government, who cares how much or for how long we’ll be paying it off. It’s also worth mentioning the injustice of taking money out of the common tax pool to pay for projects that will ultimately benefit only a few people.

It seems like the rampant disease of state-sponsored hypercapitalism, that we have been exporting all too lucratively to the cash-strapped or war-torn countries of the developing world has finally come back to infect us. If you hadn’t realised it already, there is no facet of our country too cherished, too efficient, too useful or too beautiful to be sold off by a caucus of two unelected parties for some faceless accountant to make money off of.

At least I think I’ve answered my original question: Is nothing sacred to the ConDem Coalition? Yes, profits and votes.

Jumping Ship From Goldman Sachs

Yesterday Greg Smith caused a stir by resigning from Goldman Sachs, in a op-ed piece in the New York Times. In it’s simplest terms he says that the culture at the firm is no-longer about doing what’s best for its customers but how much money they can bleed from them. Goldman’s malpractice is almost an industry joke, they’ve had senate reports, SEC investigations and judges have criticized them and they appear to have weathered the storm. But now even their own people are joining the revolt, can the beast live much longer?

What was most surprising about Smith’s essay on his disappointment with the firm is that it’s taken so long for a similar insider expose to come to light. Although not the only player on Wall Street or in our City to be palying fast and loose with other people’s money Goldman Sachs is surely the the boldest and most arrogant of them all. The company whose motto used to be “long-term greedy” has gotten lazy and seem to have abbreviated it to just “greedy” and have perfected the art of making money regardless of what it means for anyone else. Their story is the bible for every finance fraudster in the industry.

Goldman is the company that helped drive up the dotcom bubble, until it burst and wiped $5 trillion of just the NASDAQ index. They took web companies that were little more than hopeful ideas in their founders heads and took them on roadshows to persuade investors that they were the next big thing. To reward the CEOs and founders of these start-ups they’d give them a special deal and let them buy shares at a lower price than opening, this meant that the first day spike in prices would mostly go straight into the CEOs wallet rather than to the company itself. It won Goldman a lot of return business.

Using a technique called laddering they could get investors to buy stock at the initial opening price and then secure a promise to buy more at a higher price later, pretty much guaranteeing that the prices as a whole would rise to at least that level. This insider information could allow Goldman to surf the wave of the rising prices, and get out before the start-up fell apart and died. To quote the eminently quotable Matt Taibbi “It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.”

The dotcom boom taught banks around the world, and Goldman most of all, that you can take any old piece of junk and hype it enough to make money. Whether that practice is good for the companies you’re taking public, the pension funds that took the bait or even the economy as a whole doesn’t matter a damn. In fact the more you game the market in favour of yourself the bigger bonuses everyone gets.

That principle was taken to it’s absolute limit during the sub-prime mortgage crisis. If you want the most shocking example then you can look no further than Jeffrey Verschleiser, who worked for Bear Stearns at the time, his business ethic was so prized that he was hired by Goldman after tanking his own bank. A scheme so monumental in its evil genius it was enough to have him named in a lawsuit by the Federal Housing Finance Agency, a rare feat amongst Wall Street bankers.
Verschleiser was in charge of mortgage backed securities, he’d buy and package up thousands of mortgages into a single financial product and try and sell it on to investors. To make it seem like a good deal they’d check the assets were priced correctly, would get the original lender to agree to buy back any mortgages that turned sour and to top it off bought insurance on the whole package.

The reality worked rather differently, Verschleiser was ordering the department checking the mortgages to stop wasting money on the doomed to fail product, and overrode their advice 65% of the time they told him they were going to fail. When the original owners of the mortgages bought back the bad ones, he and other Bear Stearns execs took the money without passing it back to the buyer. To top it off they took bets against the insurance companies, knowing that they would be ruined by the toxic waste Stearns had persuaded them to insure.

This kind of scamming and betting against your customers means that banks like Goldman get paid for their job, then scalp everyone else three times before calling it quits. Once they’ve pillaged the entire finance sector, the government have to step in to re-fill everyone’s coffers, which are promptly raided again by Goldman. The ultimate injustice is that Goldman paid just 1% tax to the American government by funnelling money through offshore holdings. You can bet they don’t pay any more tax here either. Think about that, $14 million in tax, for a company that pays its CEO $43 million.

Goldman Sachs and the rest of the banks have been able to get away with this for so long because of all the cash flowing around the system. Who cares if your bank are scalping you for a few percent if you’re making hundreds of billions? They’ve lost the incentive to perform good practice and actually look after their customers. We can only hope that more people like Greg Smith can at least punish them, in a way that governments have utterly failed to do for their wrongdoing. Only that way are we actually going to see the banks doing the job they’re supposed to be doing; investing in our futures and driving our economy forward.

High Pay Is Bad For Business

When we talk about high pay, we tend to focus on the moral case. We’re all in this together, why aren’t you? How can one person ever need that much money? What have they done to deserve their reward? We’re taxing the poor to feed the rich! It boils down to what the right like to call “the politics of envy” and has resulted in growing calls to redress the balance of power between the managers and the shareholders.

But what’s taken as a given, is that paying either group exorbitant sums will incentivise them to drive their companies to a brighter future, maximise their profits and increase their social utility. Tinkering with the balance of power over pay, between shareholders and the boardroom, doesn’t address the problem that neither group necessarily have the best interests of the company at heart. There may be a strong moral case against high pay, but there’s a good business case too. It’s a question of how we reward people, and how that affects a company’s longer term survival.

At the root of this conundrum is the fact that if you’re paying someone millions, they become obligated to turn a profit of billions. This is achievable but unsustainable. The most famous example is that of the Royal Bank of Scotland, between 2004 and 2007 it had grown a staggering 32% under Fred Goodwin’s leadership. We all know how that story ends.

For your average company making a profit means making more sales or cutting costs, only one of those is a viable short term solution. Staff can be fired, making people do more work and wearing them out and discouraging them from investing their passion in the company. Cutting manufacturing costs reduces the quality of the product and erodes confidence in the brand. Development and research budgets may be dispensable in the short-term, but losing the talent and the technology ultimately dooms a product to become outdated.

Yet as the company’s profits increase along with CEO pay, shareholder dividends and share buybacks the inward investment in the infrastructure of the business itself drops and its chances of survival grow slimmer. Everyone’s happy and the future of the company is being flushed down the toilet.

Paying CEOs and managers too much encourages risk taking, there’s nothing wrong with it so long as that risk is calculated to be in the interest of the company, not just a mechanism to earn a bonus. It also encourages firms to try and hire executive “superstars” and overlook progression within the company. Someone hired from outside can’t have the same insight into the fundamentals of the company or an emotional attachment to its work. If a manager is attracted to a position for the salary alone then you have to ask questions about why they’re there in the first place.

Shareholders cannot be trusted to always do what’s best for the company either. After decades of being publicly traded, a great proportion of shareholders are small stake, short term investors. Instead of seeing a problem in the organisation and seeking to change it, it’s in their best interests to simply sell up and invest in something else. The timeframe of investment rarely matches up to the timeframe of conducting effective business.

If we’re going to regain a world class economy, we need to focus on the business as a whole not just the people at the top. Corporations have grown so large that their failure or success cannot be attributed just to the managers or owners, they’re the products of the collective efforts of thousands of people. Where’s the sense in incentivising just the people sitting at the top of the pile.

We need to foster a sense of belonging within our business. Threats of job cuts, wildly unequal remuneration and pressure to increase productivity do the opposite, only serving to drive committed people to more secure employment, exactly when they’re needed most. Linking CEO pay to a ratio of the average employee wage is a small and simple step towards a more productive, equal workforce.

Instead of our current model of “shareholder capitalism” we should be moving towards “stakeholder capitalism” to reflect that the most sustainable businesses are those that take input from every level of their structure and react accordingly. We should involve the CEOs and chief execs, shareholders, the workers and the people in the community to make the best decisions for the future of the business. Ultimately it is all these groups that will be affected by its growth or collapse.

Now that companies can be deemed too big to fail, this is no longer a question of letting businesses decide for themselves. We’ve let the markets rule since the economic “Big Bang” and they’ve done a terrible job of it. We need to ensure that our economy is going to be productive over the next few decades, not just years, and as it stands the incentives for doing so aren’t in place. Let’s realise that it’s not just the managers and shareholders that have an interest in making our economy work, it’s all of us, so lets reward everyone who contributes to making that happen not just the pencil pushers at the top.

Government Backs Down On Workfare Scheme

Whether because of mass public support, a lack of commitment from business or from a small band of far-left trots, the government has backed down over key parts of their workfare scheme. Most jobseekers will no longer be compelled to join these work experience placements or risk losing their benefits. It seems the government are willing to shed a little blood rather than provoke yet more outrage in the run-up to driving the NHS reforms through the Lords.

The work experience scheme was voluntary for young people that had been unemployed for between three and nine months. They would partake in a two to eight week placement for 25-30 hours a week. If that person decided to walk out of the placement after the 1 week grace period they could face a two week halt on their benefit. Or at least that was the official line, when the scheme came to be implemented a rather different picture emerged.

Many of the 30,000 plus young people enrolled on the schemes felt that they never had a choice. The letters received by the applicants are very misleading and strongly suggest that benefits will be lost if they do not attend even if they decided they don’t want to do it. People on placements often complained of being ignored, not properly trained or even laughed at. To top it all off there isn’t even a promise of an interview, let alone a job after two months of work. And if they do get offered a job, even for a measly 7 hours or so, they certainly will have to take it or lose their benefits.

It doesn’t take a socialist to see that there’s something fishy about young people being put onto semi-mandatory placements with large companies, paid by the state at way below minimum wage. These companies are having people work for them, making profit for them, why can’t they pay them? Yes, the businesses are offering these people an opportunity, but the people on placements are offering a lot more. When a company like Tesco which made nearly £4bn in pre-tax profits last year, and decides to pay it’s chief executive Sir Terry Leary a staggering 526 times as much as their average worker on £11,918, wants to take on these placements you have to ask whose interests it’s in.

This is especially true when the Center For Economic and Social Inclusion’s figures show that people on work placements aren’t even much more likely to get a job afterwards. Politicians defending the scheme have been very careful in wording their statements regarding the successes of the scheme, they’re right in that 50% of JSA claimants stop taking benefits 6 months after a placement. However, where the people going off JSA go they have no idea, certainly not all into work. And in fact there appeared to be no difference in the rate young people left JSA between those on workfare and those not.

That could be down to the fact that workfare was supposed to target the most challenged young people, and I think there will be some people who will genuinely benefit from it. If you’ve been struggling for a foot in the door then a two month placement could be the break you need. Equally we’ll always find the people who’ve been abused by the system and forced into placements that haven’t been rewarding. I’m tempted to ignore the individual horror/success stories though, because on balance the scheme is not really about helping those people. It’s got less to do with getting people back to work as it does getting business working again, cheaply and at the taxpayers expense.

Having people working at below minimum wage isn’t just bad for those on placements, but bad for everyone in precarious employment. People keeping their benefits while on work experience is fine, but what we’ve seen is this practice being carried out on an industrial scale. Each hour a person on a placement works is an hour that someone else isn’t getting paid for. Supermarkets and retailers using lots of unskilled labour will reduce their operating costs by having work done by placement students. Frankly, when the government is giving you labour for free you’d be foolish not to.

At the bottom of the ladder every job is fiercely competed for. It is not the reality that shelf-stackers and retail assistants will be happy of the extra pairs of hands provided by the people on placements. Most retail workers are on very low, or even zero hour contracts, drafted in week by week wherever there’s a gap in the rota. The more workfare placements an embattled shop manager takes on the more likely other staff are going to get told not to bother coming in for the rest of the week. With costs of living rising, more competition for jobs and downward pressure on wages is exactly what we don’t need.

As with most schemes designed for young people though, I think it misunderstands how gullible young people are. As was quite tritely put by Flying Rodent “Confront these kids with bullshit like Workfare instead of a respectable start to an actual career, and they’re going to instantly clock that the British workplace is an exploitative scam designed explicitly to immiserate them for the benefit of others.”

A4e Founder Back On The Jobhunt

Today the founder of the Action for Employment (A4e), Emma Harrison resigned from her post as David Cameron’s “Family Champion” if you’re into flashy government titles, or “back-to-work tsar” if you’re not. Harrison stepped down after four former employees of A4e were arrested in connection with a fraud inquiry. Although A4e were mainly involved in Labour’s Flexible New Deal programme, the news comes alongside the rising tide of criticism about the Coalition’s new Workfare scheme and questions about whether private contractors are really best placed to get our nation back to work.

A4e is a curious beast, in that it is funded entirely out of taxpayer money. The Department of Work and Pensions pays the company to get long term unemployed people into work and then keep them there. For each referral into the programme they receive £400, if they can get the person a job lasting over 6 months then they get an extra £1,200, after that monthly “sustainment fee” can bring the earning A4e can make from a single person up to around £13,000. Their methods are to give counselling and training to treat the causes of joblessness like pressure looking after the family or lack of skills and use their contacts with business to find placements.

On the surface it seems as if this model is successful, they have successfully negotiated over £180m worth of DWP contracts. In fact, being a private company and not subject to the same accountability, we don’t actually have a clear picture of how the company operates. The DWP says that as the work programme lasts for two years the relevant numbers haven’t been crunched to give a full account of the statistics either.

Labour MP Margaret Hodge, told a meeting of the Public Accounts Committee, which she chairs, that A4e had an “abysmal” record. She claimed that their success rate for getting the long term unemployed into a job through the Pathways to Work Programme was only 9%, way below their 30% target, and questioned why they had been given more contracts afterwards. The DWP spokesperson explained that because new companies were bidding alongside A4e it wouldn’t have been fair to compare past records, another example of the insanity of competition driven procurement. In fairness A4e deny the 9% success statistic, saying that Hodge confused them with another contractor, they offer their success rate as 24.2%.

A4e has also drawn fire from voluntary organisations in the last month. May charity groups were brought onboard with the companies before the bidding process, the deal would be to co-operate and share their expertise in getting people into work. Since a rosy beginning relationships have soured as some charities feel like they were used as Big Society fluff to decorate the larger companies bids with. A4e for example take £50 of the £400 just to refer a jobseeker to their partner charity. Margaret Hodge said of the practice “A4e has no risk, its contribution is minimal, and it still slices off that money. To you and me, that will feel like a scam.” A4e and similar companies have also been accused by their partners of creaming off the easy targets and leaving the more difficult cases to others.

A more fundamental problem of these kinds of back-to-work companies is that of substitution. There is of course benefit in getting long term unemployed people back to work, but the jobs they are taking would just have been filled by another jobseeker, and without costing the taxpayer £13,000. When a company’s major selling point is it’s close links with national business it asks the question how they can justify their added value if they’re placing people in jobs that will surely be advertised all over the internet.

A4e has certainly had some success, but there have also been many instances where cases have been mishandled. A4e has previously had to return money to the government on five occasions. One case had an employee forging employers signatures to claim that some jobseekers had found gainful employment. The company has also been slated for sending several jobseekers into work experience placements within their own offices.

What has drawn the most criticism however is quite how wealthy A4e is making its founder Emma Harrison. Their profits on their £180m turnover are unknown, but the top managers took home £4.7m and the company paid out £11m in dividends to it’s five shareholders. On top of her wage Harrison gets a yearly £462,000 from renting their home to A4e for business events and her husband £626,856 for another property.

You can understand why it makes people angry. Here’s a company that offers little added value, hasn’t innovated some new management technique or service, has failed to meet its targets, isn’t accountable or even vaguely transparent, is very cosy with the past and current governments, has been alleged to have committed fraud and undercuts and undermines existing voluntary services, yet it’s managers are being bankrolled by us for millions.

If the government was doing it’s job properly it would be performing these services itself, and could still be more efficient for not paying its managers £15 million pounds.

Outsource or In-House?

It’s a balance that the coalition are seeming to struggle with at the moment. Under pressure to undo 13 years of Labours supposed profligacy it seems as if the government are simply axing services wherever they feel like and worrying about how, and more importantly how well, those services will actually get performed later.

“We are seeing an accountant-driven set of redundancies and to put it crudely senior civil servants are ignoring the skills and simply taking anybody that puts their hand up.” Says Dai Hudd, the deputy general secretary of Prospect, which represents senior civil servants. While the government may decide to cut a post because it is too expensive, the cuts have been enacted so rapidly, alongside so many other high risk projects, that there are few people keeping an eye on the long term costs to the civil service.

The skills provided by the civil servants still have to come from somewhere, often those skills come from private contractors who have to be put on expensive short term contracts. Either that or hiring employment agencies to fill the gaps in staffing lefts by the cuts. Neither route will be able to attract the talent that will drive the civil service to success. We’ll be paying for our lack of investment in people and skills for decades to come.

The Guardian is reporting today that the Ministry of Defence spent £290m on specialist consultants last year, up fifty fold from the 2006 figure of £6m. The government blame Labour’s Framework Agreement for Technical Support (FATS) initiative for the spike in costs. Supposed to speed up failing projects, the reform was meant to make hiring specialists that weren’t employed by the department easier by skipping the ministerial check that less technical consultation requires. FATS go through the equipment budget, used for the procurement of weapons and vehicles, quite separate from general consultancy.

When the issue of FATS costs spiralling out of control was raised last year, a review of the scheme was drawn up. It found that 75% of the claims were made without looking for a cheaper outside provider, and many without even checking if there were MoD staff capable of doing the work. The report said that there was a risk of staff “inadvertently or deliberately” seeking payment for outside consultancy through FATS when they should have been seeking ministerial approvement. 36 of the 380 businesses are explicitly consultants, and even one of the examples picked in the review broke this particular guideline. The MoD’s widely touted reduction in outside consultancy services from £71m in the year FATS was introduced to £20m looks rather more suspect in this light.

John Trickett, Shadow Minister for the Cabinet Office is also saying that while the government are making unprecedented numbers of redundancies, the central Civil Service are spending £30m on employment agency fees to keep them in staff. Many former employees are wondering how many of their jobs could have been saved by doing the work that the MoD has subcontracted out. Cutting the FATS budget by just £100m would save 5,000 average wage jobs.

While the treasury and it’s accountants may be looking at their shrinking wage bill with glee, what they’re missing are the more important losses to the government’s ledgers. The civil service is built around a dedication to do what is in the public good, the private sector is built around doing what you’re told and getting paid for it. You’re far more likely to get the answer you want if you pay for it, and when it’s a government asking the questions then breaches of interest are bound to occur. Look at the devastation caused by the rise in private funding of science research.

That’s before you get to the issue of the “revolving door” of politics and business. If a general company has a tendency to give you the answer the minister asked for, when that company is chaired by a former cabinet minister or MP, like many private healthcare consultancies are staffed by former Department of Health officials, then you’ve truly thrown any attempt of independence or neutrality out the window. Unlike a civil servant, private companies are not subject to the same accountability or standards of practice, don’t expect them to attempt to live up to these expectations if they don’t have to.

The most valuable thing the public sector has lost are the skills, like any business the public sector needs investment in people to retain the efficiency to carry it on into the future. Understaffing is the slow road to an organisation of overworked generalist managers. If we’re going to have an efficient civil service it needs to accommodate people with the skills to test, implement and question government policy, not just funnel money through the system.

The government’s over-reliance on outside help, is a result of their poorly thought through and all too hastily enacted trashing of the public sector. More worrying than the long term effectiveness of the organisation, is the undermining of the civil service’s most important role – to provide a break on the rampant ideology of their masters and do what’s in the people’s interest.

NHS Reforms Are Broken – Here’s How

It’s arguable that most of the opposition to the Health and Social Care bill comes about not because of what we know about it, but because of precisely what we don’t. The original legislation is over 300 pages long, abolishes half of the currently existing regulatory bodies and brings into being a whole slew more, turns our hospitals into businesses, opens up the NHS to competition from private interests and all happens at a time when the service is being made to make “efficiency savings” of 4% a year for an unprecedented four years in a row. Quite what the effects of this unleashing of the market will be, no one is quite sure.

We are repeatedly told by the Coalition that this is not the road towards privatisation, but it can’t help but ring hollow after the repeated lies on the same subject. No top down re-organisation of the NHS turned into exactly that. Cutting the deficit not the NHS became a 0.1% increase in funding, even then way below inflation, alongside having to return a massive £20bn in efficiency savings back to the treasury. More recently Cameron’s “waiting times down under the Coalition” claim has been turned on it’s head. The government’s track record on being open on its true intentions is so bad and the bill itself is so vague on how the reforms will work in practice that I find it hard to trust anything that comes from an official capacity.

So lets look at how the new system will play out. The framework, in general terms, has GP Commissioning Consortia (GCCs)in control of the majority of the budget, buying treatments on behalf of their patients. They can buy directly from NHS Foundation Trusts which control the majority of the UK’s hospitals or from private companies and each treatment performed amounts to an income for whichever wins the commissioning contract. The GCCs will be accountable to the Commissioning Board which is appointed by the Health Secretary to determine each GCCs budget and whether they’re spending it effectively. Monitor is the ultimate regulator of the system making sure the Comissioning Board, all Foundation Trusts and all the private providers are acting above board. One key amendment that has been made to the bill is to make Monitor accountable to the Health Secretary, under the original proposal the entire NHS was free to act essentially as it wished.

Intuitively, giving power over the budget to GPs on the front-line seems like a good idea, but it won’t be quite as easy as that. GPs are trained medical professionals not accountants, if they are going to be expected to handle budgets of billions they will need to hire a layer of managerial staff of a similar scale to the structures already in place. Competing providers will need to be assessed on cost and quality, contracts will need to be negotiated, evaluated and renewed and books need to be balanced. The bureaucracy has simply been moved a little closer to home and with a greater cost to the system as a whole for being duplicated in thousands of GCCs across the country. That is if GPs don’t take the easy option and outsource the work to private consultants who will be more than happy to slip backhanders to their friends in the private sector.

GPs are still likely to find their hands tied, with budgets constrained there will be little choice but to commission cheaper alternatives to quality care. The Department of Health has made it quite clear that no part of the health service is “too big to fail” so practices number one priority, whether they like it or not, will be cost. As odd as it may seem, there is nothing to stop a particularly virulent flu season or a motorway pileup half bankrupting a GCC and impacting on the care of the rest of the people in the area for the rest of the year. These kinds of freak occurrences can be absorbed by an institution as large as the NHS, but not so well by small consortia.

We can also expect far higher legal fees being felt by the NHS. The great flaw in doctors being seen to be in control of healthcare budgets is that it takes away the impartiality of their judgement on their patients health. In the future, many patients told “this treatment isn’t effective in your case” or “best thing for you is bed rest” are far less likely to take those statements at face value and will want to seek reparations. On a less personal scale, Monitor’s role in ensuring a “level playing field” for all secondary care providers is also wide open for abuse. Private providers have been proven to be less than scrupulous when using competition law to get their way. The health bill even opens up the NHS to yet more legislation from the EU in regards to competition, the health service will likely end up buried in it.

Encouraging private providers to compete attacks the “business model” that hospitals have been forced into. NHS hospitals earn money from easy treatments and use them to cross subsidise treatment for more complex, long lasting cases. Now private companies are being allowed to compete for these quick and easy treatments most hospitals will find their funding slashed, and as the risk report that Andrew Lansley is fighting a legal battle not to have published is believed to say, many hospitals will face collapse.

With so many areas where the bill can lead to damaging consequences, the regulatory bodies will simply not be able to have oversight over the whole lot. Fraud, malpractice, corruption and mis-management will flow through the gaping cracks in this bill. In an effort to reduce bureaucracy the Coalition have created a system designed for abuse.

The largest flaw in the bill is that a top to bottom integrated healthcare institution can’t help but be more efficient than one composed of thousands of intersecting parts. Indeed the American healthcare giants, upon which large tracts of the market-driven agenda were based, gain their efficiency from growing in size to rival the NHS. The public monopoly so hated by free-marketeers will be replaced with an oligopoly of private parasites, leeching government money to spend on massive pay packets for their CEOs, dividends for their shareholders, subverting our government, advertising and PR.

Ultimately, once they have grown enough in strength, the parasites will kill off their host and the NHS will crumble. Its efficiency killed off by unnecessary competition the NHS will grow steadily worse, and eventually the political right will call for it to be abolished altogether. Healthcare for all, free at the point of service, regardless of your ability to pay will be a long lost dream and we’ll realise what was truly at stake back in the early 2000s.

Spin and Lies: How the NHS Reforms Were Born

The NHS reforms have proven so horrifically unpopular that it was inevitable that they had to have come into being largely in secret. Over a decade of gradual reform the Labour government were able to put all the framework for a marketized NHS into place. Turning the NHS into an institution based around competing private firms leeching government money for their own profit is not a new idea, Andrew Lansley’s plans for the NHS only develop on what has gone before. His mistake was to enact this reform as part of a government so mistrusted that people have actually woken up to the direction the NHS has been steered in, despite the public’s wishes to the contrary.

This trend towards a healthcare market has little basis on evidence, and more to do with a steady morphing of the Department of Health into a tool of lobbyists and vested interests. The NHS is widely regarded as one of the most effective and cheapest to run in the world. It may not be perfect but the changes made to it over the last decade have done little to solve the underlying problems, replacing one form of inefficiency with another.

The inevitable result of governments encouraging “consulting” with businesses is revolving door politics. People drafted in from management consultancies and private firms perform a brief stint as an adviser and then return to the private sector to reap the rewards of new legislation and their Whitehall contacts. This approach was rife within the DoH during the formulation of the new NHS strategy.

To take a few examples, one of Blair’s special advisors was Simon Stevens who is now executive vice president of UnitedHealth Group. The DoH’s director of strategy Penny Dash had great influence in the NHS plan, before her time in government she worked for healthcare consultants Boston Consulting and the US health provider Kaiser Permanente, afterwards she went back to McKinsey and co-founded the healthcare lobbying group Cambridge Health Network.
Ex-Health Secretary Patricia Hewitt went on to work for Cinven, an equity firm that bought up what used to be BUPA hospitals and Alliance Boots who have interests in the pharmaceutical industry. She also gained some infamy after being stung by a Channel 4 team offering to use her contacts in government for a ficticious US lobbying firm. Alan Milburn, another formed Health Secretary went on to work for Bridgepoint Capital an equity firm with interests in private health.

The most flagrant example is that of Ken Anderson of the Commercial Directorate, a Texan businessman drafted in specifically to “introduce independent sector providers to the NHS” his “staff” consisted of 182 interims on short contracts from the private sector at a cost of £1,000 to £2,000 a day each.

The list of government officials now in the businesses they get started goes on and on. Then on some more. Once you consider that Gordon Brown had cut almost 15% of the posts within the DoH in 2004, the department was increasingly observed to be a tool for carrying out policy rather than assessing its effectiveness and analysing new options. With a staff of mostly NHS managers and externally recruited management consultants, the department got very liberal with the truth in trying to achieve their goals.

The main tactic used to obfuscate the public was simply not enacting any legislation. Only the introduction of Foundation Trusts required full democratic scrutiny. The rest of their “reforms” were presented as papers to parliament, veiling their true intention. Two of the five major papers taking apart the NHS were presented just before the summer recess. A sign of quite how controversial they might prove if subjected to a full commons debate.

Some information the DoH has simply withheld, or even better not collected at all. The how vast the failed NHS IT project really was and details on PFI built hospitals are a notable examples. More insidious are the failure to collect data on the results of private treatment that would allow direct comparison of outcomes to the NHS. A DoH survey that discredits the idea of patient choice, finding that people would rather their GP choose services for them and would rather visit the nearest hopsital than any other, was disowned by the department.

Some of the department endorsed evidence is simply wrong. One influential report published in the BMJ compared the cost effectiveness of the NHS and American healthcare provider Kaiser Permanente was cited in the white paper “Delivering The NHS Plan” and a Treasury review of NHS spending. The authors found that “Kaiser achieved better performance at roughly the same cost as the NHS” It seems to ignore the fact that a nationalised health service is the most integrated you can get and The report received 82 responses discrediting the claims.

The report fails to incorporate the many hidden payments for America patients, from consultations to drug costs. It compares the NHS, serving all members of society to Kaiser which serves only those wealthy enough to afford health insurance, making the NHS seem worse off in its outcomes. Most damagingly it uses an incorrect method of making prices equivalent between the UK and US, its reported claim of the NHS being 10% less expensive per person actually turns out at around 40% less expensive. The authors also fail to note the other useful services the NHS provides in training and education for doctors and nurses.

While there are many free-market think tanks to provide “research” into the benefits of marketization there are very few voices in opposition. Some £20m a year is spent producing pro-market analysis subsidised to a large degree by the taxpayer, whereas less than £500,000 is spent being critical of it. If you are sceptical of the government’s agenda, they won’t hesitate to replace you with someone more compliant. Allyson Pollock, a former special adviser to the Commons Health Committee spoke out against PFI deals and was removed from her position, the Head of the PFI Unit asking her “if it was in her career interests to brief against senior NHS officials”.

The long road towards a market based healthcare system was always against the public’s wishes and so has been travelled in secret. It is yet another example of how free market ideology infected New Labour and has been proudly taken up by the Coalition. In order to drive through this flawed reform, the government drafted in unprecedented numbers of private sector workers, the inevitable result is an NHS which is geared to work for them and not for us.

Cameron Burns European Bridges At Davos

The World Economic Forum began earlier this week. Delegations of the worlds richest and most powerful people have travelled to the Swiss Alps to discuss the issues that face the economy and hopefully come up with solutions. Davos, briefly holding the highest concentration of billionaires in the world, of course drew a number of our own politicians looking to preen and posture during their speeches and court the world markets in the backrooms of the conference centre.

By all accounts this years forum has been a rather subdued, nervous affair. The fifth since the 2008 financial crash, it has become clear the the problems arising from the struggling banks have seeped into nearly every aspect of the economy. When the first talk at a conference catering for 70 billionaires begins with a debate on whether 20th century Capitalism is working for the 21st century, and 40% of those attending say that it is not, then there is clearly some appetite for change. The right questions might be being asked, but few seem ready to answer them.

The Eurozone crisis drags on, although the ECB has been able to provide liquidity to many of the struggling banks, the structural problems inherent in the north south divide, Greek insolvency and the long term viability of many governments borrowing with such high interest rates remain. There are even rumblings that Hungary may be the next domino to topple.

Alongside these problems, rising inequality and high unemployment are being suffered by every economy of the West. Nouriel Roubini, nicknamed Dr Doom after he correctly predicted the 2008 crash and hasn’t revised his sceptical outlook on our economic future, warned that these issues were a political powder keg. Social unrest stemming from austerity programmes has the power to topple governments if allowed to get out of hand, especially concerning to the semi-illegitimate unelected technocrat governments of Greece and Italy.

David Cameron and George Osborne were very keen to show that they have all the answers, despite the UK GDP dropping by 0.2% in the last quarter of 2011. They both repeated the theme of prescribing one thing while doing, or achieving something very different. A cynical person might suggest that they were simply telling business leaders exactly what they wanted to hear, regardless of their statement’s validity or their political fallout. Not an awful lot of difference to how they act at home then.

Cameron launched a scathing attackon European leaders, criticising them for not solving the Eurozone crisis sooner and permitting British recovery. “Tinkering here and there and hoping we’ll drift to a solution simply won’t cut it any more.” The solution, apparently is boldness, he mentioned it no less than 15 times in his speech. It made his lecturing rather difficult to swallow for many EU leaders considering that Cameron’s own display of “boldness”, vetoing the last EU treaty, sent the summit spiralling into chaos.

The financial transaction tax, the sticking point of the veto, was singled out as “madness”. Cameron suggested that the tax “could reduce the GDP of the EU by 200 billion euros cost nearly 500 thousand jobs and force as much as 90 per cent of some markets away from the EU.” Suddenly it seems that Cameron is less willing to act boldly to reign in the finance sector, unite the EU as a single political bloc and lead the way for a global financial transactions tax.

Continuing on the theme of Euro bashing, and implicitly offering the UK as a viable alternative for businesses, Cameron told us: “five EU Member States are now less competitive than even sclerotic Iran.” He suggests de-regulation and “red tape cutting” as solutuons, offering the “Agency Workers Directive, the Pregnant Workers Directive, the Working Time Directive.” as examples of job destroying burdens firms face. Phillip Jennings, general secretary of the UNI global union, told the Guardian the PM’s championing of deregulation was based on a “big, bold lie”. That actually the most competitive economies, like those of Germany and France, are actually those with the highest levels of worker protection.

Throughout the speech Cameron boasts of his austerity credentials, including going so far as to announce a successful re-negotiation of public sector pensions, which may come as a surprise to the unions still bitterly fighting the government. Seemingly blind to the damage it is causing austerity is recommended to the rest of Europe, and the world. He seems to have forgotten that without a large export market the UK’s economy is hugely dependent on domestic spending, cutting British people’s incomes only damages the economy. If he wasn’t willing to listen to us, you’d at least hope that he might listen to the supposedly pro-business IMF or ratings agencies who have both said that austerity policy is flawed.

Cameron says “let me be clear: we want Europe to be a success.” but seems both unwilling and unable to lend a hand in making it one. It seems that the UK’s “privileged” position outside the EU caucus is limited to making snide remarks on the sidelines. For a leader that is going to struggle even getting int the same room as the action at the next EU summit, one would have thought that he might be a little more forgiving of our neighbors and our best chance at a relatively painless recovery.