2010: An apology.

    2010 will always be, for me, the year of apology, the year of humble pie,  the year I go it wrong.  Yes, I know: I get things wrong all the time - I’m a political journalist after all.  But this was different.  During the general election campaign in May, I suggested that in certain key marginal seats, like Edinburgh South,  voters should consider voting for the Liberal Democrats.  Why?  Because I thought there was a chance that, by levering in more LibDems,  we might finally see a fair voting system in this country, proportional representation.  There was a good chance that a Liberal-Labour coalition - for that seemed the only credible outcome of a hung parliament -  would finally end the first past the post voting system that handed too much power to Number Ten and not enough to the House of Commons.  I also hoped that the  Liberal Democrats might act as the radical conscience of a Liberal Labour coalition.  Hadn’t they stood alone against the Iraq?   I even commended the Liberal Democrats to students since they -  and only they - had given cast iron pledges not to increase tuition fees in England or introduce them in Scotland. 

2011: the End of Work.

  And so this is Christmas, and what have you done? Or so sang John Lennon, the 30th anniversary of whose death was commemorated this month.  Can it really be that long ago?.  Curiously, the music and image of the former Beatle doesn’t seem dated, even though he is a figure from digital prehistory.  Lennon died before there were mobile phones, personal computers or the internet.  He was a product of the mass media, but that media has changed in ways he could never have comprehended. 

   If you compare the world as it is now, in 2010, even with how we lived only a decade ago, at the Millennium, the differences are striking enough.  Flat screen TVs, mobile computers, sat nav broadband  and WiFi have transformed our work and leisure.  Social networking - Facebook, Twitter and the rest - has changed the way we relate to each other to such an extent that we don’t really know what the word “friend” means any more. We had email ten years ago, but it didn’t dominate our lives . And while blogging was on the horizon, no one thought that the newspaper industry would face a crisis because of it.   Digital technology has accelerated the pace of modern life.  We live in a real time world, where information is no longer something you have to spend time finding, but is ever present in one electronic form or another. 

Osborne's Bullingdon Budget

  Prepare for a hot autumn, comrades: the class war starts here.  Labour have hoist the red flag over Westminster and are preparing bonfires for the Liberal Democrat “collaborators”.  This budget, they say, was  Bullingdon Man taking his “ideological” retribution against the state using the coalition as cover.  It will hit people on low and middle incomes hardest, throw hundreds of thousands out of work, create fear and insecurity among benefits claimants and the disabled.   But the question is: was there any alternative, given Britain’s wrecked finances? Or was this, as the Chancellor put it, the “unavoidable budget”?   

  It is certainly a radical, even a revolutionary budget.  A 25% real terms cut in non-protected government departments in four years. A fiscal consolidation of nearly £120bn by 2015.   The rollback of the state implied by this Budget is simply unprecedented in modern British history.   We are talking tens of thousands of public sector jobs going, services like education, housing, transport, police and social work slashed.  Margaret Thatcher never tried anything so ambitious. George Osborne said he was seeking a deficit reduction on the ratio of 80% spending cuts to 20% tax increases.  She only managed about a fifty fifty split in her early budgets, and public spending actually went up during he 1980s. Can he be serious?

Let's have some capitalism for capitalists.

My Big Idea for 2010? Simple. Bring back capitalism. No, I'm serious. I may be a superannuated socialist who thinks the banks should be nationalised and has always supported the redistribution of wealth. But right now, we need a bit of capitalist rigour to sort out the mess left by the financial crisis. It's time for financiers to start paying for their mistakes, honouring their debts without rushing to the state for another bail out. Just like Margaret Thatcher said of the old nationalised industries thirty years ago: no more lame ducks; no more feather-bedding.


Capitalism is supposed to be about competition - failing firms are supposed to go out of business so that capital can be re-assigned to profitable businesses that are producing things that society wants and needs. Capitalism cannot function when one set of capitalists is given privileged access to public funds in order to insulate them from market forces – and provide them with lavish profits they haven't earned. Yet that is exactly what has happened over the last eighteen months – and on a colossal scale. Hundreds of billions of pounds have been thrown at loss making enterprises which just happen to be called banks. As the governor of the Bank of England, Mervyn King, famously put it, in what must be the quote of the year: “Never has so much been owed by so few to so many, and with little real reform”.


The investment banks who brought us the 2008 crash learned that if their debts are big enough, and their losses large enough, then they become “systemically important” and can expect to be rescued by the state to prevent a collapse of the entire financial system. The banks actually have a lot in common with the old state enterprises in Communist states of Eastern Europe in that they have no competition and no risk of failure because of their access to public funds. But we surely learned from the Soviet experience just how dangerous it is to allow a small clique to seize control of the economy, whether bankers or communist party bureaucrats.


The West's financial oligarchs have plunged the world into recession, destroyed millions of jobs and consumed vast amounts of social capital, but like the old Communist bosses in Russia, it didn't cost them personally. They have been insulated from risk by the state. Their share options may have fallen somewhat in value, but thanks to the billions handed to them by the government, and reduced competition, banks like Goldman Sachs are richer than ever and paying the biggest bonuses in history. Even state owned Royal Bank of Scotland, officially the worst bank in the world, has been handing million pound bonuses to the very executives who made RBS a by-word for irresponsible speculation. They say, without irony, that they must reward excellence or lose their best people.


What sticks in the craw is that many of these people – the Fred Goodwins, Andy Hornbys, Eric Daniels - used to be the cheerleaders for Thatcherite private enterprise. Financiers were the first to condemn trades unions in the 1970s for their restrictive practices, their leap-frogging pay claims and their lack of social responsibility. Yet here they are, snouts in the trough, arguing for parity with other plutocrats, demanding special deals, ignoring the impact of their selfishness on the rest of society. These very banking executives used to claim that the free market had to be protected from the dead hand of state control. Now here they are running to the state for bail outs, equity injections, interest free loans, asset protections schemes – anything to protect them from the very system they imposed on the rest of society. It's one law for them, another for the rest – the mission statement of the economic parasite since the days of Feudal privilege.


Really, there is no more pressing issue facing our legislators as the British economy hauls itself wheezing out of recession in 2010. Whoever wins the next election must deliver a very clear warning to the City of London: never again! There is no free lunch any more. Banks that are bankrupt must go out of business. Directors must lose their jobs and bonuses. Bank shareholders must lose all their equity, as in any other risk venture.. Same with other loss-making organisations that have been seeking government support like gas guzzling car manufacturers, property speculators exploiting near zero interest rates, quasi-nationalised train companies and fly-by-night PFI providers.


If we don't draw a line under this now, the behemoth banks, knowing they are too big to fail, will simply return to irresponsible lending and derivative trading exactly as before. Actually, they're already at it. Have you wondered why the banks that were at death's door a year ago are now making vast profits again? Why their share prices are rising so fast? Well, first of all, the government – that's you and me – has taken hundreds of billions of bad debts off their books in asset protection schemes so they don't have to register these as losses.


But that's only the start. The banks are currently borrowing money at 0.5% interest rates from the Bank of England and then buying government bonds that pay around 3.5%. That is as near to free money as it is possible to get – except that the money ultimately comes from us in our taxes. Banks are also using this cheap money to speculate on shares, hence the recent stock market boom, and in commodities like oil and gold, which have been making splendid returns recently. What they are not doing is lending to productive industry- which is still at record low levels - or to first time home buyers.


Banks don't make things, apart from debt, so it's often hard to understand quite how they make their profits. They use impenetrable jargon like “bid-offer spreads”, “discount window”, “carry trade” “derivative trading” which mystifies the whole process. But at root it isn't that difficult to understand. Say I lend you £100 at 1% interest for one year , and you then lend that £100 pounds to someone else at 10%. After twelve months, you get back £110, but you only have to pay me back £101. That's almost exactly what the banks are doing. It is like magic. And that's what financiers really are – conjurers who fool us into thinking that they can create money out of nothing.


Trouble is, they also fool themselves. And this is how the great credit bubble began in the early years of this decade, when interest rates were kept too low for too long after the 2000/01 dot.com crash. Banks were able to make huge profits, lending out cheap money at ever greater multiples of their core capital. They didn't care who they were lending it to because, they believed – rightly – that the government would come to their rescue the in the end. Only one thing will prevent the bankers blowing up another credit bubble: the fear that they may lose everything if they go too far.

One final thought: the rest of us could do with taking a look at our own financial behaviour too. The banking crisis may have been caused by the greed and irresponsibility of a financial kleptocracy. But we have all participated in the creation of the credit economy – most obviously through the housing bubble. People have grown used to their homes 'earning' more that they do by working at a job. We have become addicted to living on debt: equity release, credit cards, mega mortgages, overdrafts, student loans, car leasing arrangements. Instead of trying to live within our means, we have sucked hard and long on the teat of credit.


This has served the long term interests of the banking oligarchs, but we cannot ignore our role as the bankers willing little helpers. Clambering greedily up the “housing ladder”, exploiting tax breaks on property ownership, demanding such high prices for our real estate that first time buyers have been priced out of the housing market altogether. And if the mortgage becomes too much we expect the government to cut interest rates to magically wipe away our debts, just like the banks'. Millions of home owners with large mortgages have had tax free windfalls of several hundred pound a a month in 2009 thanks to near zero interest rates. People with huge debts are being given a free ride. Older people are being bribed to stay in big homes they don't need while young families can't get anywhere to live. Britain has become two nations: the home owners with their subsidised loans and the rest who can't hope to afford to join them. And ultimately it's all paid for by money printed by the Bank of England – a sure fire recipe for hyper-inflation.


When I was a naive young man, I campaigned for a socialist economy in which the commanding heights of capitalism were brought into public ownership and control. Well, in a way it has happened. The state now owns large chunks of the banking system, and has supported the rest of it through a whole range of bail out measures, from buying toxic loans to acting as lender of last resort to banks bereft of liquidity. But this isn't promoting the common good. We have created a bastard synthesis of finance capitalism and communism – a system of socialism for the banks. Time for a little bit of Thatcherite medicine to be applied to people who were so keen to apply it to the rest of society. Let's have some capitalism for capitalists.

Noughties: Decade of Delusion

Why do current affairs seem to order themselves into decades?
Reviews of the year and the decade are really just a journalistic device for filling space during the winter holiday season. But somehow events conspire to arrange themselves accordingly. For it is impossible not to look at the last 10 years as a meaningful collision of events. It cries out as the decade of delusion – and 2009 was the year in which, to mix metaphors, the delusions all came home to roost.
A global economic crisis brought to an end a decade of cheap money, hyper-consumerism, bankers’ hubris and unsustainable debt. In politics, our illusions about the Westminster system were shattered when it was revealed that our “honourable members” are as capable of petty corruption as the “wabenzi” of any dysfunctional African state. And at the end of a decade in which we all tried to ignore the reality of climate change, the world’s leaders finally came together in Copenhagen to disagree on how to tackle it. It’s as if someone had planned it all, like a Hollywood blockbuster, leaving the climax till the last reel. Unfortunately, there’s no happy ending.
The cosy delusion that climate change could be tackled by co-operation and consensus was blown out of the water as China emerged as a self-interested world superpower determined to be recognised as co-equal with America in decisions about the planet’s future. The poor and vulnerable nations were left out in the cold – or rather in the hot, since low-lying countries like Bangladesh and the Sudan are likely to be the first casualties of global warming.
As temperatures rise, so will conflict as poor countries who consider themselves victims seek compensation from rich countries who don’t accept they are to blame. There is a sense of injustice developing which could fuel terrorist movements that make al-Qaeda look like a branch of Friends Of The Earth.
And we’re not good at dealing with terrorism. The pivotal event of the decade was, of course, the plane-bombing of the World Trade Centre on 9/11 by Bin Laden jihadists. As the twin towers smouldered, President Bush declared a “war against terror” – to which Tony Blair was the first naive recruit – and then perversely went on to attack a country which had nothing to do with the bombing or with al-Qaeda. The British people were told that Saddam Hussein had weapons of mass destruction that could destroy us in 45 minutes – which must count as one of the biggest lies in the history of modern warfare. The Iraq invasion played into the hands of the mullahs and militants whose websites claimed it as proof that Western “crusaders” are determined to crush Islam.
Never has a political leadership – the Bush administration – proved to be so militarily inept, so morally deficient, so lacking in political vision or the instinct for self-preservation. The war in Iraq, which the new US President Barack Obama has promised to end in 18 months, has cost more than a trillion dollars and 4000 American lives, and led to hundreds of thousands of Iraqi deaths. It has been a diplomatic and military disaster, leaving America a bankrupt pariah – a dumb and dumber superpower humiliated by a few thousand Islamic militants. And for an encore? Another hopeless engagement, this time in Afghanistan, propping up the corrupt and untrustworthy regime of President Hamid Karzai. Throughout 2009, exhausted British soldiers have fought and died valiantly with inadequate equipment and without any clear idea of what they are actually doing there or what they hope to achieve.
Back home, the noughties were the years when everyone became obsessed, as never before in modern history, with house prices. For most of the decade the value of this one asset rose year-on-year in double digits, leaving us a nation divided between those who have made huge capital gains out of doing nothing and a new generation who can’t get a roof over their heads. It will be regarded by history as the ultimate delusion: that you could build an economy on ever-increasing house prices, as if money grew on trees.
British manufacturing dwindled as our economy became dominated by financial services, managing the assets of the property-owning classes. British consumers shopped till they dropped, and when they ran out of money took another chunk of equity out of their homes or took on ever bigger mortgages.
House prices were not just a Daily Mail obsession, they were absolutely central to the financial crash of 2008/9. Bonds based on the nominal values of homes owned by sub-prime borrowers in US inner cities became traded as if they were safe as, er, houses. It was utter madness. Bankers were earning bonuses of hundreds of thousands of pounds a year buying and selling financial instruments they didn’t understand, or didn’t want to understand. When someone asked the awkward question of what these mortgage bonds were really worth, the whole system collapsed. Banks refused to lend to each other because they no longer trusted each other to be honest about their solvency. Indeed, most banks in Britain and America became insolvent and remained so throughout 2009, supported by the taxpayer. The public ended up owning most of RBS, the biggest bank in Britain, and supporting the rest through a £1 trillion bail-out.
The crash turned politics upside down, with Labour initially defending the City of London, and the Tories, under David Cameron, calling for an end to bank bonuses and the curbing of financiers. However, during 2009, the political parties reverted to type, with the Conservatives calling for deep cuts in public spending to get Britain out of debt, while Labour insisted that the priority must be to keep the economy from slipping back into recession. As the stock market has rallied recently, so has Prime Minister Gordon Brown, whose popularity has been flatlining all year. Suddenly, there is hope.
But no-one should be under any illusion that the fundamental problems of the British, or the world economy, have been addressed. Colossal public spending and near-zero interest rates have brought economies like ours back from the brink. But the banks are still hiding the true scale of their losses and Britain has not worked out how it is going to pay its way in the world now that the banking sector is, well, bankrupt. Britain is borrowing £20bn a week and running a public deficit of 13%, which is simply unsustainable, though Brown hopes the roof won’t fall in until he is back in Number 10 after the next General Election.
The banking crisis turned into an unexpected political crisis for the Scottish National Party. First Minister Alex Salmond has had cause to regret holding up countries such as Iceland and Ireland as role models for an independent Scotland. If Scotland had the misfortune to be fully independent last year, the government would have been left slashing wages and public spending because the country had become even more dependent on scumbag bankers than the Celtic Tiger. As it is, Scotland faces real term reductions in public spending through the Barnett mechanism. SNP election pledges have fallen like needles off a Christmas tree: local income tax, student debt, first-time buyers’ grants, smaller class-sizes, the Scottish Futures Trust.
It’s by no means clear, however, that the Nationalist experiment is over in Scotland. Indeed, the very scale of the financial crisis, and the big cuts coming south of the Border, have given the SNP a get-out-of-jail-free-card as far as broken manifesto pledges are concerned. Mr Salmond remains extremely popular and has until now played a blinder leading Scotland’s first minority government. However, in 2009, there was a growing sense that the SNP isn’t quite sure where it goes from here. There is a tension between the social democratic wing identified with Health Secretary Nicola Sturgeon, and the neo-liberal instincts of the Finance Secretary John Swinney, which may become acute when spending cuts become a reality in 2010.
The public meanwhile are bemused at Mr Salmond’s enthusiasm for holding a referendum on independence which the polls suggest he would lose. There isn’t a snowball’s chance of the current referendum bill being passed by the Unionist majority in the Scottish Parliament – unless Labour decide to call the Nationalists’ bluff. The SNP leadership are hoping that a slash-and-burn Tory government in Westminster will give Scots the stomach for constitutional change, but that is by no means certain and Labour could even find itself leading opposition to the Tories in Westminster.
So, is Scotland any closer to independence in 2009? Not really – people don’t like to go out on their own in a storm, and the financial crisis is far from over. The success of the SNP has largely been down to Mr Salmond’s political genius rather than a popular desire to leave the UK. Its success is also down to the Scotland Act, 10 years young, which set up the Scottish Parliament and gave a determined government scope to make a real impact within the flexible terms of the devolution settlement. There will be no going back for the Union.
The decade of devolution has seen something of a reversal of fortunes between Holyrood and Westminster. In the early years of the noughties, it was the Scottish Parliament that seemed mired in scandal and expenses rows. MPs up from Westminster shook their heads in disbelief at the latest lobby-gate, taxi-gate, medal-gate scandals. But the boot is now very much on the other foot following the scandal of MPs’ expenses.
Members of Parliament misused their second homes allowances to speculate on the London property market, flipping their second homes to avoid paying capital gains tax. They furnished their properties lavishly from the infamous John Lewis’s List, bought everything from toilet seats to duck houses and put it on the tab, somehow believing that this was acceptable to the British taxpayer. Well, now they know. It was the delusion of the decade.