In praise of fixed terms

The Fixed-Term Parliament Act has not had a good press, and some commentators have condemned it either for making things worse or having no effect (those things can’t both be true at the same time).  If it was intended, as Mark Elliott suggested a couple of years ago, to curb the power of governments and increase the power of Parliament, it has just done rather well.

The fundamental premise of the Act is that the business of Parliament should carry on even if no-one has a majority. The Coalition government was evidence there there was an alternative, which was government by a majority coalition.  There is another alternative, which is a minority government that limits its programme and proceeds by negotiating with opposition groups; that is what happened in February 1974, when there was no majority, and it was thought of as normal practice in Scotland, where the electoral rules were initially believed to limit the possibility of anyone ever having a majority.  Neither Theresa May, nor Boris Johnson, has seemed to be able to grasp the basic idea that “the government” is not “in charge”.   The government is a legislative leader and executive, not an autarchy. People have to be won over, and everyone has to compromise.   That style of government may be beyond the capacity or wit of the Johnson administration.

Is a Brexit deal on offer? I think it might be.

It’s been widely reported in the press that Boris Johnston has been given 30 days to come back with a solution to the Irish backstop.  This morning I was in a fascinating session, led by Mark Diffley and Steve Richards, which assumed that this was the case. I think Angela Merkel was saying something significantly different – but if the offer is not understood and acted on right away, the opportunity may be lost.

The Withdrawal Agreement is, and has always been, incomplete. It represents only the first stage of a negotiated settlement.  The backstop is an insurance policy – a red line, if you will – to cover the eventuality that there is no agreement on the second stage.  That raises the obvious  the question – why not get on with the second stage?

And that, as far as I can make it out, is the position just put by Ms Merkel.  She is well known for being careful with her words.  What she said in the recent press conference was not that she is looking for an alternative to the backstop, but that she is open to a resolution on the future relationship that would mean that the backstop will never come into effect.  This is the summary from the Guardian:

She said that the backstop had always been a “fallback position” and would only come into effect if no other solution could be agreed that would protect the “integrity of the single market”. She went on:

“If one is able to solve this conundrum, if one finds this solution, we said we would probably find it in the next two years to come but we can also maybe find it in the next 30 days to come. Then we are one step further in the right direction and we have to obviously put our all into this.”

She is not saying that Boris Johnson must offer an alternative to the backstop – if that was what she meant, she could have said so.  She is saying that the backstop is there because no other resolution has been made about the future relationship.  That is the solution which would have to be arrived at before Britain leaves.

There are three obvious problems here.  First, this is not a line agreed with the rest of the EU; it is in particular somewhat different from the line being taken by President Macron, who if I read the runes rightly just wants it all to end. Second, there is a lot to do.  But third, if the British government continues to play with alternatives to the backstop, this is not going to happen; what they need is a comprehensive agreement that will make the backstop redundant.  That could be done at speed – but for as long as the attention of the government is elsewhere, the time is being frittered away.

My own private Brexit

I have received today le Certificat de nationalité française, confirming that  I am a French citizen. I have no intention of renouncing my rights as a British citizen, but I have no intention of surrendering my rights as a European citizen either; and I do not think it reasonable to require any person to give up  the rights of citizenship, or democratic to suppose that their rights can be extinguished by the will of a majority.  My father and grandparents were refugees from France, my first wife was French and my children are dual nationals, but as we were all members of the European Union it didn’t seem important for me to do anything about my own status.  In November 2016, I realised I would have to. I obtained the necessary documents, arranged for formal translation of English documents and completed an application for the  in January 2017.  The process has taken most of three years, and I still don’t have the carte d’identité or a passport, but the question of legal status has been sorted.

I’m far from alone in taking such a step:  hundreds of thousands of British citizens have applied for citizenship from various EU countries, many from Ireland or Germany. It will protect my rights to live, work and travel in the EU – I’m more likely to work in Poland than I am in France – but the issues go much deeper than that.  I wrote this in March 2017:

There have been demonstrations over the weekend.  They’re not about tariffs. They’re about movement, contact, travel, education, work and family life.  The loss of European citizenship means that you won’t have the right to live or work across Europe without a permit, to study where you will, or to marry a European with the assurance that you’ll be able to live together.  And that directly and immediately affects the lives of millions of people – not just the 4 million already identified by Michel Barnier (that is, EU citizens in the UK and UK citizens in the EU), but anyone in a mixed family, and anyone who might be. People like me; quite possibly, people like you.

Before the referendum, I tried to flag the issue when it wasn’t on the agenda; since the referendum, I’ve raised petitions on Change.org and in the European Parliament.  This is about the right to live in Europe.  We were told that right was fundamental, not just to what the European Union was all about, but to us; and for many of us, it is.

 

 

Postscript: This was my 1000th post on this blog.

 

Brexit: there is a way to an agreement, but no-one seems ready to take it.

I dislike repeating myself, which is why I haven’t had much to say recently, but there is a way out of the current impasse – if only the UK government and the EU will take it.  The backstop protecting Ireland appears to be the primary source of contention.  It is only needed because the UK and the EU have not yet formed any agreement about Britain’s future relationship with the EU.  Indeed, in more than two years, thanks to an absurd initial decision about the sequence of the negotiating process, they’ve not agreed a single binding clause about that relationship.  An agreement on the future relationship would finalise Britain’s departure, and then there would be no need for any provisional arrangement to cover the particular circumstances of Ireland in the interim.   Yes, trade deals are complicated; but substantial existing deals are there as models, many of the points already in the withdrawal agreement are uncontentious, and Britain currently meets the acquis communautaire.  It could be done, if people wanted it to be done.

Unfortunately, I see no evidence either that the new UK government is interested in engaging in any kind of negotiation on that basis, or that the EU understands that there is a way out of the mess that doesn’t involve brinkmanship or a game of ‘chicken’.  Everyone has packed up for the summer.  In those circumstances, Brexit will happen without a deal.

The Economist is berated by right-wing libertarians on Twitter

An editorial in The Economist has expressed some concerns about the irresponsible pledges being made by the contenders for the leadership of the Conservative Party.

These proposals range from unwise to extraordinarily bad.  Mr Johnson’s tax cuts would be both a waste of scarce resources and grossly unfair.  He would reduce their cost by raising national-insurance contributions, a payroll tax.  As a result the biggest beneficiaries would be well-off pensioners, because payroll taxes fall only on those in work.  The policy is a shameless bribe to the elderly and prosperous Tory party members who choose the leader.

That critique has been rebuffed by neo-liberals on Twitter.  An argument from @_JamieWhyte runs as follows:

What do they mean? How are scarce resources wasted when the government collects less income tax? Does @TheEconomist  believe that private spending is more wasteful than govt spending? I cannot think of any other interpretation of this claim (help, anyone?)

That’s an intriguing argument, because it has implications its supporters may not have recognised.   If tax is a means of financing government, this would leave a deficit (which the Conservative right has consistently claimed it’s concerned about), and the money has to come from somewhere.  To govern is to choose, and this is a distributive decision.  If on the other hand tax reliefs are basically transfer payments – altering the balance of spending power between private citizens – then the same argument made here, that money held in private hands can’t be wasteful, also applies to social security payments, which are another way of doing the same. That can’t waste resources, either.

For most of the last sixty years, however, it’s largely been accepted that tax reliefs are simply a cost to government (the argument was made by Titmuss).  If they’re a cost, they must be justified; and a cost to benefit the rich, imposed at the expense of lower-paid workers, is hard to defend.

The libertarian right usually sees tax relief as allowing people to keep ‘their own’ money. The basic objection to that position is that incomes and tax rates are entirely conventional.  (Note that the defenders of the proposed tax cuts have been commenting that senior policemen and nurses – whose pay is determined entirely by public policy  – should not be subject to higher rates of tax. ) The reason why Nordic countries can sustain higher tax is that the structure of their incomes is different, and conversely the low taxes in Mexico are not compensated for by higher incomes.  No-one should imagine that, if the structure of tax rates was to be fundamentally reformed, their income will ultimately look the same as it does now.  We have to counter the illusion that tax is capturing people’s private incomes.  The distribution of income is not a private matter.

The public mood is swinging against Brexit

Views in the UK are polarised.  It is difficult to draw any clear message from the pattern of voting in the European elections, but the graph – prepared by the BBC, seems to mark a strong shift against Brexit.  You wouldn’t know it from the BBC’s Brexit coverage; I am listening now to a Radio Scotland item which is telling me that the Brexit Party romped home in the election.  Clearly, they didn’t.

The denial of votes to EU citizens on election day is another national disgrace; it will be the subject of legal action.  The assault on the rights of EU citizens goes rather beyond the 3.6 million people from the rest of Europe resident in the UK – or even them plus the 1.2 million UK residents in other European countries.  UK citizens are European citizens, too.  The formal census figures are out of date, as usual, but the population of the UK in 2017 was  roughly 66 million, and 90% are British nationals.  A further 5.6 million currently live abroad, of whom 1.2 million live in other EU countries.  We should perhaps discount 1.9 million people from Northern Ireland, because their rights are guaranteed if they so wish it by the Irish government, but that still leaves us with 57.7 million British nationals in the UK, and 5.6 million outside the UK, whose rights to European citizenship are being withdrawn.  In the 2016 referendum, 17.4 million people voted to leave the EU.  If we assume that all of them can be said to have consented to the loss of their rights, that still leaves 46.9 million other British citizens who are being denied their fundamental rights on the basis of that vote, and more than 50 million people when we consider European citizens from other countries living in Britain.

 

Can we revive capitalism?

Yesterday I went to an interesting event organised by Reform Scotland on ‘The Future of Capitalism’, addressed by Adrian Wooldridge (‘Bagehot’ of the Economist) and Lord Wood.  Most of their recommendations focused on fixing the vices of large companies and restoring the ‘dynamism’ of capitalism through small businesses and worker participation.  I think there are more fundamental issues to address.

The first is: is this still capitalism? It’s a question raised by Tony Crosland in the 1950s, and it’s highly pertinent to the debate.  Our economy doesn’t fit the conventional models of market capitalism in several ways.  Crosland pointed, for example, to the divorce of ownership and control, and the role of the state.  There’s a lot to add to that – for example, the role of voluntary, non-profit and mutual organisations.  (We also have some less appealing non-capitalist elements, such as the survival of pre-capitalist landholding in much of Scotland’s territory – at least 30% is still held by the landed gentry).  We have a complex, diverse, mixed economy, rather than an ideally ‘capitalist’ one.  Measures which aimed to revitalise the economy through a purer form of ‘capitalism’ may well just miss the point.

The second question: is ‘capitalism’ the source of our prosperity?  Many advocates of the market system, and capitalism’s ‘creative destruction’, believe it is; the story is not straightforward.  If we look, for example, at the housing system, people in the UK were able to live in decent housing in most cases through one of two mechanisms: the building societies, which were mutual, non-profit organisations devoted to making home ownership possible, and social housing, mainly developed through local authorities.  Many of our  current problems in that field relate to the ideological destruction of those systems.

Third: is ‘capitalism’ really the source of dynamism in our current  economy?   Successive British governments have been convinced that it must be, and that the key is independent, small business that will grow into larger businesses.  Most other countries are much more likely to have developed large industries through state aid – Mariana Mazzucato’s work on The Entrepreneurial State makes the case strongly.   And in the UK we’re apparently convinced it’s not cricket to do the same.  Our economy may be sinking, but at least we’re playing the game by the rules.

I’m generally suspicious of most analyses of ‘capitalism’.  Like Santa Claus, it’s used as a catch-all expression to explain why some of us get presents and some don’t.  Let’s talk about the  world as it is instead.

Scotland doesn’t have to have one currency. It could use four.

I was puzzled when Alex Salmond, during the referendum on Scottish independence, opted to push a particular model for currency in an independent Scotland; it simply wasn’t necessary.  As Iain McWhirter recently argued in the Herald, it’s the sort of decision that can be put off till later, and it’s perfectly possible to change the model if something isn’t working.    In the current debates, I think we’re seeing a reiteration of many of the same arguments.  All of them seem to me to be based on a false premise: that Scotland must choose its currency.  Why?

The Growth Commission, which fell victim to the same elephant trap, starts off its discussion by identifying  three purposes of money:  as a medium of exchange, as a unit of account, and as a store of value.  They could quite reasonably have added a fourth, because it’s most of what their discussion is about: money as an instrument of economic policy.  The histrionic criticisms made by some of the pro-independence commentators have suggested that it is not possible to be independent without an independent currency.  This quotation from Wynne Godley, objecting to the Euro, is going the rounds on Twitter:

the power to issue its own money, to make drafts on its own central bank, is the main thing which defines national independence. If a country gives up or loses this power, it acquires the status of a local authority or colony.

Have at you, France!  Italy, you are a local authority!  I blow my nose in your direction!

Let’s take some of the heat out of this. Money of all kinds can be used as a unit of exchange.  There are lots of places where currencies of different sorts will be accepted, regardless of what the official currency might be.  I’ve been places where they wouldn’t accept local currency, but asked to be paid in dollars.  As someone told me in Croatia, asking for payment in  pounds:  “Money is money.”  And money can be a unit of account in one currency while it is being exchanged in another.  When I was in Poland, my formal contract was paid in zloty, as the government requires, and tax was deducted in zloty, but the job offer and the pay were in Euros.

Scotland could survive while using the British pound.  Despite some of the nonsense that people come out with – such as George Osborne’s preposterous claim that Britain would “stop” Scotland using the pound  and that there’d have to be trucks crossing the border carrying notes and coins – whether or not Scottish people use the pound, or any other currency, is down to them.  But things don’t have to stop with the pound.  The Scottish economy, for those who haven’t noticed, already uses two currencies.  Most people use the pound sterling in ordinary life, but the oil industry conducts its transactions in US dollars.

In the past, it’s been difficult for buyers and traders working in multiple currencies.  The main issue has been the practice of the banks.  A combination of technology and competitive innovation has already largely overcome that.  Most retail payments in the UK are now made by card, not cash.  I use a bank which offers me parallel currency accounts and transfers without holding or transaction fees.  As transactions are cashless, there’s absolutely no reason why people shouldn’t hold accounts in Euros, pounds, dollars and other currencies at the same time; traders could make their own choices.  Scotland could reasonably have four currencies: a Scottish currency, the dollar, the pound and the Euro.  The main reason for having a separate Scottish currency would be as a unit of account and a tool of economic policy.  Whatever the choice is, we don’t need to get hung up about it.

This blog entry is suspiciously green

Richard Murphy has written several blog entries on the possibility of environmental taxes, including a tax on the consumption of products from cows, sheep and goats, because of the environmental damage done by the livestock industry.  He hopes that this will promote a shift towards consuming vegetables instead.

The objection I have to this kind of scheme is much the same as the objection I raised to the Green proposal for workplace car parking levies.  I replied to Richard in these terms:

There are two key problems with attempts to direct behaviour through ‘repricing goods and services’, and your proposal to tax foods derived from animals suffers from both of them. The first problem is that repricing is a blunt instrument. Changing the relative price of goods also changes the relative price of possible substitutes, and the substitutes may be as bad or worse than the options that are being controlled. What would you do, for example, if it emerged that the high relative price of dairy products prompted an increase in the consumption of environmentally destructive palm oil? Now I’ve pointed to the problem, you can probably say that it ought to be restricted too – but for any policy which takes in such a broad sweep of behaviour, there’s a limit to how many outcomes you can anticipate and provide for. There are nearly always more, unexpected consequences that aren’t visible until the damage has been done.

The second, and more important, objection is that repricing can (and often does) have unacceptable distributive consequences. Many environmental taxes have the effect that they allow richer people to carry on as they were, while poorer people suffer the restrictions and bear the cost – congestion charging is a clear example. And the thought of increasing the price of staple dairy products at a time when people on low incomes are going without food and having to seek help from food banks is frankly alarming.

The central flaw in the argument lies in one of the standard assumptions made in economic textbooks, which is that supply and demand can be controlled most effectively through the price mechanism. I’ve argued in my own blog that rationing by price is rather inadequate as an instrument of public policy. It offers nothing to protect us from inappropriate inclusion or exclusion from access to resources, and while some people think it’s a fair procedure (which is debatable), it is unlikely to be fair in its effects.

Richard took it that I must be arguing for a free market, when in fact I’m arguing the opposite; some things are not well left to the market, and attempts to tweak the price mechanism have unpredictable and undesirable affects.  Traditional markets don’t work.  But something else might.

Those of us who have been around for a long time might remember the Marketing Boards:  Eggs, Milk, Meat and Wool.  Despite the name, these schemes did something far beyond ‘marketing’: they took over the bulk of the markets, guaranteeing returns to producers, subsidising prices for consumers, and avoiding the problems of instability for which agricultural markets are notorious.  Here is a description of the egg marketing scheme from Hansard in 1956, as proposed by the Conservative government of the day.

Changes in supply and demand do not have to be very large before biggish changes occur in the price, which may have a disrupting effect and leave room for harmful speculation, with all that that entails….The board will have power to require that by far the great majority of eggs produced for the wholesale market will be sold by producers only to the board. … Every day the board will fix its selling price for eggs, and the distributive trades will be able to purchase those eggs from it at the prices settled. Any unsold eggs will be retained by the board and will be either moved to other markets or stored, for sale later.

In other words, the Board took over major aspects of production and distribution, protecting producers to an agreed level and ensuring consumers had access to a quality product at a stable price.

Britain eventually abandoned these policies, for two reasons: first, because food production was no longer seen as essential for national defence, and second because the UK joined the Common Agricultural Policy instead (it’s a markedly inferior system – unlike the Boards, the CAP rewards both excess production and acquisitive land ownership).  Only the Wool Marketing Board still exists, a collective, non-profit organisation that manages a centralised distributive market for fleece wool.

If we want to have general, secure access to vegetables at a subsidised price, taxing the alternatives to vegetables is not the best route.  And if we want to promote the consumption of vegetables, it may make sense to focus on that rather than developing policy relating to meat and dairy products.  Should we perhaps be thinking about a Vegetable Marketing Board?

 

The shape of inequality is not what Piketty thinks it is

Half of England, a Guardian report tells us, is owned by less than 1% of the population.  That sounds, on the face of the matter, like a justification of the Marxist view of the concentration of capital – and, for that matter, of Thomas Piketty’s argument, in Capital in the 21st Century, that inequalities are increasingly likely to  be concentrated in the hands of wealthy individuals.  But the figures for land ownership in England don’t quite show that.  The largest group of landowners are still the aristocracy and gentry, fundamentally a pre-capitalist source of inequality still accounting for 30% of the land.  17% of the land is owned by ‘new’ money, oligarchs and capitalists.  But 29% is owned by corporates, institutions, public authorities and organisations.  The central weakness of Piketty’s analysis is its  failure to engage with ownership that isn’t in the hands of private individuals.  Organisations and other non-human entities have an advantage over human beings; once their wealth is concentrated, it will either remain or it will pass to other non-human owners.  In the long term, this, rather than the hands of private individuals, is where wealth will be concentrated.