Monthly Archives: January 2012

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It’s too late for other Europeans to be as efficient as Germans

Over the last few years, we have become familiar with the fiscal analysis of the problem. We are told that it was all about the failure to uphold the Maastricht Treaty, and the profligate spending and borrowing of Portugal, Spain, Italy and Greece. And that is certainly true, in the sense that the eurozone’s unsuitably low interest rates did allow those countries to rack up debts it is now clear that they cannot afford. But that debt problem is at least partly a function of the way the euro works, as a monetary union in which devaluation is impossible. It all boils down to unit labour costs — and unit labour costs are determined, I am afraid, by national stereotypes that have a unfortunate grain of truth.

Let us imagine that there are two factories, producing similar cars, and that one factory is German and one is Italian. Let us suppose that to assemble and spray each unit costs 1,000 euros in both factories — at least to begin with. Over time, however, history teaches us that the German factory will start to reduce unit labour costs. Without compromising quality or reliability, the German factory will start to find ways of speeding the process up. By investing in the skills of the workforce and in high-tech capital equipment, they will find a way of reducing the unit labour cost to 900 euros. At which point, the Italian factory faces a crisis. They can cut costs themselves, but without the gains in productivity – and face the risk that the car will be correspondingly shoddier and that they will be rumbled by the consumer. Or else they must face the awful reality that the more-efficiently produced German machine will start to devour their market.

Now in the old days, before the euro, there was a simple solution that allowed the Italians to keep producing cars of the same quality and to keep unit costs down. It was devaluation, and if you look at the post-war career of the lira (and just about every European currency) against the Deutschmark, you can see how it worked. As the mark appreciated, it was more expensive for Italians to buy a German car; and as the Italian currency fell, Italian cars remained a good buy in Germany. The tragedy now is that this option is closed off for the eurozone members — and look at the Italian car industry.

Manufacturers can no longer use the lira to compete on price, and they are being utterly stuffed. Italian car sales fell 15.3 per cent in December, while sales of German cars grew 8.8 per cent. The Italians now produce fewer cars than we do, and their markets are being relentlessly gobbled by Audis and Beemers and other beautifully engineered machines from Germany. None of this is in any way to disparage the post-war German achievement; indeed, it can be taken as an argument that we other European countries should have learnt to be much more like Germany.

We should have invested in skills and education, and in capital equipment, and in all the things that make the Germans so productive and that keep their unit labour costs so low. And in an ideal world the fierce teutonic discipline would now force the rest of Europe to shape up, in the way that Angela Merkel described in her bracing speech in Davos. Over a few decades, that is indeed what might happen. The hard necessity of slugging it out toe to toe with German workers might eventually transform the productivity of the Italians and others, so that they matched the Germans in sheer focus and efficiency and all-round Vorsprung durch Technik. The trouble is that this extra pressure is being placed on the eurozone periphery countries, at exactly the moment when Europe as a whole is facing a massive double-squeeze.

The challenge of Asia means that European welfare, pensions and employment standards will be increasingly hard to sustain, and the straitjacket of the euro is preventing the periphery countries from devaluing and going for growth; so more people are thrown out of work, welfare bills rise, debts grow — and Brussels demands more austerity, in a vicious circle of pain. All the while, German exports power ahead. The price of splitting up the euro may indeed be tremendous. But what is the long-term cost of keeping it together?

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Boris Johnson: 50p tax rate ‘unlikely’ to be axed

Boris Johnson said it was “unlikely” to be axed in the current climate, but warned that in the long term the City must be able to compete internationally.

Earlier this month David Cameron said he still regarded the rate – introduced by Labour in 2010 – as a “temporary” measure following reports that the Government had accepted it could not be axed before the 2015 general election.

Asked if the 50 per cent rate was “here to stay”, he told Sky News’ Murnaghan programme: “It certainly looks that way, we have got to be realistic about that. I don’t see any sign of it going soon.

“All my job is to do is to argue that in the long term you can’t hope for London, a great international market city, to compete with other capitals if we have tax rates significantly higher than our major competitors, and that’s a point that I think it’s my duty to make.

“I’d like to take people on low incomes out of tax, I’d like reduce tax across the board.”

He added: “I think you are probably right in your political analysis Dermot (Murnaghan) that to go for the 50p tax rate in the current climate is probably unlikely.”

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Fowl play in London mayoral race

A different type of chicken run has been spotted outside City Hall.

A man dressed as a chicken was seen running after a Boris Johnson double on a Boris bike.

“Boris Johns-hen” as the chicken is known, is the brainchild of Ken Livingstone’s campaign to raise money and to draw attention to the Mayor’s apparent failure to debate with his opponents.

“Boris Johns-hen‘s” website says that the chicken is “going to be following the Mayor of London over the next few months to expose how he has chickened out of debating his opponents and defending his policies.”

The real Boris Johnson was quick to belittle the stunt: “On the day when I announced that I’d once again frozen council tax, and confirmed that 1,000 more police will be on the beat than at the start of my term, this tired old gimmick shows that Ken Livingstone has nothing new to say and nothing to offer Londoners.”

The London Mayor elections will be held on May 3.

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Fred Goodwin and the Occupy crowd should take up Scouting

At the risk of sounding like a character from Enid Blyton, there is absolutely nothing to beat camping. I love the exultation you get when you rise from your groundmat and all the aches melt away from your body as you realise the night is over at last. Then follows the sizzle of bacon and the hands wrapped around the mug of tea, and the first peep of sun over mountains or the mist rising off a river; and all the time that wonderful sense that you are the first to be up, that the world is snoozing, and that you have defied nature and survived a night in your own habitation – no matter how rudimentary.

I have camped everywhere from the drizzle of Salisbury Plain to the Serengeti to the beaches of California. I have bivouacked on cardboard outside the Gare du Nord in Paris. I have dossed down on my towel in Spain, and I once accidentally pitched my tent late at night in the middle of a roundabout in downtown Canberra, and woke to found my hands had been so badly bitten by bugs that they swelled like blown up washing-up gloves; and yet I would do it again tomorrow.

There are thousands of young people who are learning to share my enthusiasm, and who are being taught the joys of camping and other outdoor adventures. They are taken on trips – at no great cost – by the uniformed youth groups: the Scouts, the Guides, the Army Cadets, Sea Cadets, Air Cadets, Police Cadets and the Boys’ Brigade and the Girls’ Brigade.

A few days ago, I saw about 50 of them training in Mitcham. They were tying knots and learning artificial respiration and performing various team missions such as getting a tennis ball into a bucket without using their hands, and they were so radiant with enjoyment that I asked a girl (she must have been about 14) what she liked about it. “It’s like a family,” she said, unprompted. And what’s the worst bit? I asked her, expecting her to complain about the food, or getting lost, or the rain dripping through the canvas. “When it’s time to go home again,” she said. I don’t think I am more sentimental than anyone else, but I got a bit choky at this point. There are large numbers of kids who enjoy these activities – but then there are even more who don’t get the chance.

You may think that it all sounds a bit uncool, and that the BlackBerry generation wouldn’t be remotely interested in dib dib dib dob dob dob, or whatever Scouts say to each other these days. But there are 8,000 young people on waiting lists to join – most of them in London – and these groups are a huge potential force for social good. We can spend billions on policing, and we can fight gang crime and knife crime – as we have, with a great deal of success. The number of young people dying from knives has fallen, and the murder rate has dropped by more than 20 per cent since 2008. But long-term solutions mean catching those kids before they get involved, and giving them a better and more productive kind of gang to join.

In his perceptive book on the August riots, Tottenham MP David Lammy stressed the importance of uniformed youth groups – and the sad thing is that we can’t expand those groups without more adults to help out. To get another 8,000 kids the chance to do camping and everything else, we need at least another 800 adults. If you think you might conceivably be interested, please sign up for Team London on our website. We need public-spirited people who care about inequality and who know about outdoor adventures – and it occurs to me that there is one group of obvious candidates.

The anti-capitalist protesters of the Occupy movement have done an amazing job of getting us all to focus on the fat cats, and the many anomalies of the free market system. They are surely right to say that people should not receive vast financial rewards for business failure. They are right to point to tax absurdities, such as the rule that allows offshore companies to buy up London property without paying the vast stamp duty demanded of the rest of us. And yet all of this campaigning is surely only a part of the story. If you want to defeat poverty and inequality, then it isn’t enough just to foment indignation against the rich. You need to build up everyone else.

The problem with Western economies isn’t too much capitalism – it’s too little. There aren’t enough small companies who can get the loans from the banks, or who are confident enough to take on more staff and expand. And there aren’t enough young people who have the skills and self-esteem to take what jobs there are – and there are too many young people who lack both. The only company who could really help anybody would be logbook loans who will agree to any conditions people may have. That is why a true campaign against inequality would do more than denounce the bankers and call for the shredding of Fred Goodwin. It’s not enough to hate the plutocrats; you have to help the needy.

The Occupy movement is perfectly placed. They know a thing or two about how to pitch a camp in the unlikeliest of places. They are masters of the arts of foraging. They could show young people reef knots and brew-ups and how to cover your tracks and build a wigwam in record time. They would make perfect leaders for the uniformed youth movements, adult volunteers for the Scouts and the Guides and all the rest; and I believe they would find it genuinely rewarding.

The reality is that after months of protest, and several major speeches from party leaders, we are no nearer a solution to the problems of capitalism. We still find it hard to say exactly how government should intervene to make it “fairer”. But in working with young people, and teaching them to camp, the Occupy movement could do something huge and practical and lasting to tackle inequality: to steer them away from crime and towards employment. If they signed up for Team London, I would forgive them anything. And if Fred the Shred signs up, he can keep his knighthood.

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Isn’t it just as likely that Britain will hit the rocks and break up?

Imagine popular rage, therefore, when it was discovered that he escaped aboard lifeboat No 1 with the women and children — and it was whispered that he and his wife had even bribed the crew not to rescue victims in the water, in case the boat should be swamped. As it was, this hateful calumny was later disproved; and Duff Gordon’s defenders made an important point about his basically wretched behaviour. It was true that he was one of a small percentage of men to survive, and it was true that lifeboat No 1 carried — incredibly — just 12 people, when later boats were full to bursting of terrified human beings. But the reason his lifeboat was so comparatively empty was that when it was launched, so many people on board Titanic still shared the optimism of the Costa Concordia waiters.

They believed the newspaper claims that Titanic was unsinkable, and you can see their point. It must have seemed utterly incredible that a gigantic steel vessel, in a flat calm, on a well-known route, could come a cropper on a piece of frozen water. And to the cruise ship waiters this weekend, it must have seemed even more incredible that their floating village — twice as populous as Titanic — could just flop on its side within sight of Tuscany.

Millions of people take these cruises every year, including 1.7 million Britons, and the boats are one of the safest means of transport on earth; and as they felt that first crunch and tremor in the hull, it is no surprise that they defied the evidence of their senses and continued to scoop up the olives and the breadsticks as they rained off the tables. They were in the grip of denial, a denial based on the fallacious and complacent inductive logic that because things have been all right so far, they are going to continue to be all right — and as with the good ship Concordia, so with the ship of state.

It is now more than 300 years since that saucy and magnificent vessel, HMS Great Britain, has sailed the seven seas, and for those of us who have been aboard all our lives, it still seems out of the question that she could really hit the rocks and break up. Britain is a giant fact, one of the world’s most successful political unions, that has produced everything from an empire to a broadcasting corporation to a particularly nasty type of sherry. I am like the Concordia waiters, in that I can’t really believe, somehow, that we can be set on a course for destruction.

But look at the facts, my friends. Look at that submerged reef marked “devo max”, or fiscal independence for Scotland. If you can unpick the fiscal union, what is there to maintain the monetary union? And if you unpick monetary union — as George Osborne rightly points out — then political union is dead. The Coalition Government is like the chap in the crow’s nest of the Titanic (his name was Frederick Fleet) who strained his eyes into the night at 11.40pm and then cried, in a stammering howl: “Iceberg, right ahead!” I don’t know if there is time to avoid a rupture.

As things stand, the polls suggest the people of Scotland are too wise to go for full independence; and, as I say, no one currently believes in their bones that it will really happen. But then, the waiters of the Costa Concordia couldn’t understand how their colossal ship — the biggest ever built in Italy — could founder in such humiliating circumstances, and the unsinkable Titanic lies broken in two at the bottom of the sea. That is the nature of slo-mo disasters: they can change very quickly, from being an outlandish theoretical possibility to a predestined inevitability.

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Maggie’s magic came from her contempt for complacent men

But if the film takes liberties, it is poetically truthful. It is true to the essence of Thatcher, and above all Meryl Streep is amazing. She enters into her; she becomes her: the ruby lips, the flashing eyes, the pineapple hair, the pale skin transpiring at every pore with the fire of pure certainty. Somehow this God-gifted, 62-year-old American actress has re-explained to the world what it was like to see, meet and be the West’s first female prime minister.

Somewhere the film’s director has said that it is a King Lear story, an examination of a tragic loss of power, a meditation on the sorrow of old age. That may have been the intention of the writer and director (neither of whom, I guess, would call themselves ardent Thatcherites) – and yet it is the younger, stronger Thatcher/Streep who seizes the film and takes it over. I watched the matinee in Putney, and most of us agreed afterwards that the dementia stuff was actually quite tastefully done – a sensitive treatment of an important reality for millions of families. We just felt that there was too much of it.

Yes, she is eventually felled by the men in grey suits, but by the end Streep has effectively reminded us of what Thatcher was really all about. It wasn’t just me-first, get-rich-quick, Devil-take-the-hindmost exaltation of the values of Essex Man. That was the caricature. Thatcher herself emerges from this film as a far more revolutionary and inspiring figure – because she was a woman. From the very beginning and at all the critical moments you can see that what really actuated Thatcher was a feminine impatience with the cosy, clubby, complacent politics of the post-war consensus – a consensus that was held overwhelmingly between men of a certain age and class. Of course she believed in thrift and hard work and rewards for merit – but a proper understanding of what Thatcher really stood for is vital today.

To take the issue of the hour, I believe she would have strongly disapproved of boardroom greed. She never really much liked the City – she thought that on the whole the bankers liked interest rates to be too high for the good of her vision of a property-owning democracy. Insider traders were prosecuted on her watch, after years in which such tip-offs had been treated as a “victimless crime” that was traditionally conducted over a vinous, nose-tapping lunch. She got rid of automatic commissions for stockbrokers.

She believed in competition, and allowing the market to work – not stitch-ups. Ask yourself what Margaret Thatcher would have thought of a system where directors sit on each other’s “remcoms” – remuneration committees – and defend each other’s expanding awards, even when the directors in question have presided over commercial disaster of one kind or another. She would have thought it was absurd. Thatcher wasn’t against money, and she wasn’t against pay as an incentive to real exertion and real talent. But – and I have taken the trouble to consult her biographer, Charles Moore, who supports the point – she would have been totally opposed to all that now whiffs of a male-dominated cartel, a you-scratch-my-back-and-I’ll-scratch-yours conspiracy against the shareholders and the wider interests of the company.

Thatcher was brought up a Methodist, with a deep attachment to the values of the Protestant work ethic. She would have been against any kind of crony capitalism, and as for the solution – well, she would not have wanted pay set by politicians, and she would not have gone for any kind of continental-style socialism. But I reckon she would certainly have gone for any kind of poujadiste revolt that gave shareholders a simple way of voting down pay awards they thought were excessive.

In tackling boardroom greed, David Cameron is not bucking the market. He is acting in the true Thatcherite tradition of the Conservative Party, because male clubbiness, jobbery, idleness and complacency were the very things Margaret Thatcher fought against all her political career.