Listening to the debates on the UK’s Welfare Bill this morning, I was struck by the similarities between this debate and the endless arguments about whether the UK should give foreign aid. 

Ever since the Elizabethans institutionalised the idea of the ‘deserving’ and the ‘undeserving’ poor into the system of poor relief, governments have had two main public reasons for giving people money (here or abroad): because they need it (see, for example, humanitarian aid or child benefit), or because it will do some wider good (like help them find a job, or promote economic growth), and two reasons for taking it away: becasue they don’t really need it (the ‘undeserving poor’ that right-wing pundits are so keen to uncover), or because taking it away is in their own best interests (so they can, in the jargon, ‘stand on their own two feet’).  Welfare reforms, aid budgets, all are subject to this remorseless political logic.

There are two things which are particularly frustrating about this rather sterile argument.  Firstly, it’s conducted entirely on the spending side, while in fact the fairness of a system depends both on how money is raised and how it is spent.  Debates on spending are often conducted as if choices were all about distribution within a group of very poor people. 

Iain Duncan Smith, speaking for the government on the BBC’s Today programme this morning, argued that the welfare bill will seem fairer to people in work who are earning low incomes and who don’t want to see their taxes used to provide the unemployed with higher incomes than they themselves enjoy.  But if public spending really has come down to dividing up tax revenues from and benefit payments to people who are at or below the average wage, then the answer is not welfare reform to change the distribution of the spend, but tax reform to change the distribution of the revenue. 

Of course poor working families should not be paying for poor non-working families, just as poor working families should not be paying for poor families in other countries.  The whole point of a redistributive tax system is that it’s the wealthy who pay for the poor.  If this is really the issue, then change the tax system rather than tinkering with spending.

My second bugbear is the myth of the perfect system.  People arguing on both sides of the debate about the welfare bill and discussions about aid often appear to assume that there is some possiblity of a perfect system out there, which will solve the short-term problems of poverty without any risk of long-term distortions to people’s behaviour. 

Well there isn’t.  Rather than looking for perfection, it might be better to think about both debates in terms of different types of mistakes various systems might make.  Is it better to err on the side of generosity, and perhaps risk giving aid or welfare to a few people who don’t really need it, or is it better to err on the side of meanness, and risk cutting off aid or welfare to people who really do need it? Which kind of mistake can we live with?

Governments in this corner of the world have been struggling with this idea, at home and abroad, for over 400 years, since the first Poor Law was passed in England in 1601. There are real practical questions about how to manage both aid and welfare, how to make the most of scarce resources, and how to build handouts into a system of longer term improvements in people’s lives.  But going down false, politically expedient avenues won’t help anybody.

William Hague’s (alleged) advice to David Cameron ahead of the euro summit:

If it’s a choice between keeping the euro together or keeping the Conservative Party together. It’s in the national interest to keep the Conservative Party together.

What a day. Five observations:

1. My initial reaction this morning: On a sinking Titanic, the UK is lobbying to avoid further damage to the iceberg.  If David Cameron was motivated mostly by his wish to suck up to the City (and to his backbenchers), then he deserves all that fate can throw at him. He has transformed eventual British exit from the EU from Eurosceptic fantasy to the new conventional wisdom in just 12 hours. Quite a feat.
2. But maybe… his government has decided that the euro is now doomed and has made a rational decision to swim as far from the vortex as possible. Many believe that a disorderly break up of the single currency has become more likely than not. That would probably cost the UK 10% of GDP and make British default a near certainty. But if that’s what’s going to happen, then we better knuckle down to being as resilient to the shock as possible.
3. The British veto makes euro failure more, not less, likely. In theory, agreement between a core group is easier than having all 27 countries in the room, but the legal complications of conjuring a new set of institutions from thin air are daunting. Also, expect the core to shrink as the summit’s aspirations are chewed up by domestic politics. Each defection will provide a potential trigger for wider breakdown – probably when a group of the strong decide all hope is lost, and make a collective rush to the lifeboats. By being the first to desert the ship, Cameron has made it much easier for other European leaders to follow.
4. Contingency planning must now go much deeper. Behind the scenes, governments are playing out failure scenarios, and most big businesses have some kind of post-euro plan in place. Much of the thinking is still pretty rudimentary, however. The eurozone countries can’t risk letting markets see them flinch and have to put a brave face on their prospects, but the UK no longer needs to have such scruples. What exactly would we do if the euro goes down? What would be thrown overboard? What, and who, would be saved? How can the government organise effective collective action as the catastrophe hits?
5. Nick Clegg is dead, politically. That was already true, but I can’t imagine even Miriam González Durántez now plans to support her husband at the next election. Paradoxically, accepting his terminal status could give Clegg new freedom of action. Instead of continuing to play the role of coalition gimp, he should offer leadership to those keen to explore what comes after the storm. Politicians with proper jobs – Cameron, Osborne, even Cable – are going to be overwhelmed by events throughout this parliament, even in the best case where Europe struggles back onto its feet. Clegg, though, has an opportunity to focus energy on the longer term. He’ll still lead the Lib Dems to electoral Armageddon, but catalysing a vision for renewal might make posterity a little kinder to the poor man.

Some wag was on Twitter earlier this week, observing that if, during the 1980s, the media used to refer to Sinn Fein as “the political wing of the IRA”, then these days we should be referring to Britain’s coalition government as the political wing of the financial services industry.

Sounds like a cheap shot? Then have a look at yesterday’s FT, which has a full page analysis article (£ – or free blog post here) documenting an interesting fact about where the Conservative party gets its funding from:

“In the past decade, a dramatic shift has occurred. Super-rich hedge fund managers have become the biggest single interest group to bankroll the UK’s current main party.”

Wondering what effect this has on policy? Here’s Tim Montgomerie, editor of ConservativeHome.com and the Tory world’s blogger-in-chief:

“The City’s influence is that top Tories spend a lot of time in the company of people to whom the City matters. If the party was reliant on northern industrialists, it would be a different party.”

Or try this observation from “one of the 10 biggest hedge fund donors”:

“There probably aren’t many votes in cutting the 50p top rate of tax – but among those that give significant amounts to the party, it’s a big issue, and that’s probably why it’s a big issue for the party too.”

What do you look for in good political commentary?

I’m in favor of a mix of moral clarity and realistic judgment, topped off with an  incisive turn of phrase that sticks in the memory.  So I find it hard to top this observation on the recent attack on the UK embassy in Iran, culled from today’s Financial Times:

“I do not like Britain and I know it is evil, but a savage attack on their embassy not only makes us look uncivilised but means we have to pay for its consequences, which will be more sanctions and maybe a war,” says Saeed, a 42-year-old government employee.

100% crystal clear analysis.  Love it.

Remember how Gordon Brown used the Treasury to keep the rest of the Cabinet on a short leash? Seems like Ed Balls is up to the same trick:

It’s almost cliched to paint Balls as the the crudest of tax and spenders, throwing money at a failed system in a desperate attempt to turn the ship around. To read much of the media coverage around the shadow chancellor (and for that matter, the Labour leader), you’d presume they long for nothing more than another spending binge.

Yet tell that to the shadow cabinet, many of whom feel stymied in their attempts to even float potential new policies (nevermind make concrete spending commitments) by the strict control Balls’ office has maintained over even potential spending commitments. Nothing that could even notionally impinge on economic policy is put forward without the explicit say so of the shadow chancellor – a cause for silent frustration for many seeking to make their mark around the shadow cabinet table.

I am sure Ed Miliband is enjoying this as much as Tony Blair did.

In his autumn statement, George Osborne warned that, without his programme of fiscal consolidation, “Britain would have borrowed an additional hundred billion pounds in total [by 2014/15]. If we had pursued that path, we would now be in the centre of the sovereign debt storm.”

But how confident can we be that that storm has been averted? In the city, sovereign risk and an economic downturn are seen as the most important threats to the UK financial system. An economic downturn now seems more than likely, and will be savage if efforts fail to shore up the euro.

What about a sovereign debt crisis in the UK? When asked to name the most important current threat, risk managers for around 70 UK financial institutions now put debt at the top of their list.

I think they’re right to be worried. Even after this week’s downward revisions, the Office of Budget Responsibility expects tax revenues to grow rapidly over the next two financial years – but there’s little prospect of that happening if there’s a sharp downturn.

Imagine, instead, if the government’s income declined in the same way it did after 2008 – that would mean more than £150bn less revenue than expected over two years (a ‘taxation double dip’). Following the Chancellor’s logic, that would be enough to steer the UK straight into a debt storm.

Now you could argue that revenue will prove more robust than it did after 2008 and that’s probably true if the UK sees ‘normal’ economic underperformance. But euro breakup – accompanied by an inevitable banking crisis, massive disruption of exports, lower oil revenues etc. – would take us far beyond normal.

Bottom line: if the euro goes, it probably takes the British government with it. Happy days. (more…)

“It is disappointing that the country cannot liberate itself from the desire to subsidise borrowing to finance house purchases,” complains Martin Wolf in his review of George Osborne’s autumn statement. “Why should the government subsidise people to speculate on property prices?”

Wolf fails to understand the logic of the new policy. It’s not the first time buyer who is really being subsidised by mortgages backed by the British government. They are simply entering an overpriced market, and taking on debt that will strangle some of them in what Wolf expects to be a ‘lost decade’.

Instead, it is those who are exiting the market who will benefit if the Chancellor’s largesse succeeds in propping up prices – that’s the elderly who are dying and passing on the proceeds from a house sale to their children (who tend to be in late middle age), or the baby boomers themselves as they downsize in preparation for retirement.

Any government policy that keeps house prices artificially high benefits the old not the young. Of course, banks will do quite nicely from government-backed 95% mortgages as well – they can relax lending standards and we all know where that leads.

I remember being astonished by the rose-tinted specs donned by the UK’s Office of Budget Responsibility (“independent and authoritative analysis of the UK’s public finances”) as as it was created in the run up to the 2010 budget:

We expect the economic recovery to strengthen in 2010 and beyond, as private sector demand continues to pick up. We estimate that trend output will grow at just over 2¼ per cent over the next three years…

From 2011 onwards, GDP is expected to grow at an above-trend rate as the economy rebalances away from consumption towards investment and net exports.

That worked out well, didn’t it? Here’s a graphic showing how badly the OBR got it wrong (Datablog has an interactive version).

Each of the OBR’s forecasts – including the one released today for George Osborne’s autumn statement – has been markedly less optimistic about the near term than its predecessor, while continuing to be sure things will look a lot better in just a few years’ time.

Initially, I put the OBR’s eagerness to please the government down to weak leadership and expected things to improve when the fearsome Robert Chote took charge of the new body. But, if anything, they have got worse. Here’s the OBR’s latest fan chart which shows how bad (good) things could be fir the UK economy, based on errors in previous Treasury forecasts. Looking at it and you’d conclude that – worst case – the UK might lose 2% of GDP next year (dreadful, but nothing like as bad as 2008):

The OBR also makes a big deal of how important it is to “recognise uncertainty” and to “stress test” its assumptions. One stress is (surprise, surprise) further turbulence in the eurozone:

Our central forecast is predicated on the euro area finding a way through its current difficulties, with the effect on confidence, credit conditions and economic activity taking some time to unwind, but with the financial sector returning to a stable position by the start of 2014. In this scenario we consider the implications of the financial sector taking longer to normalise (for reasons either to do with events in the euro area or with domestic factors).

The central prediction, then, is for a two-year quick fix for the euro, which seems highly implausible to me. What about the downside? All we get is a scenario that models “persistent tight credit conditions… for reasons either to do with events in the euro area or with domestic factors.” And that leads to… a blip. Growth is totally unaffected next year (GDP up 0.9%) and is only very slightly lower in the next two years (GDP up 1.6% and 2.3%). After that, life is back to normal.

At a time of maximum danger for the UK economy, we have a fiscal watchdog whose ‘stress’ tests are ludicrously unstressful, because anything harsher “is impossible to quantify in a meaningful way.” It’s like a doctor who suspects her patient is dying of cancer, but focuses on his ingrowing toenail because it’s “easier to see.”

George Osborne promised us a body that would reassure the public. Instead, the OBR has persistently failed to model the forces tearing the British economy apart. His new creation risks becoming a laughing stock if it doesn’t quickly mend its ways.

Back in 2007, Paul Dacre – editor of the Daily Mail – told a House of Lords Select Committee “in the editorial line and in terms of the leader column, we are consistently against the Human Rights Act.” I think we’ll all agree that Dacre has been true to his word – the paper’s opposition has been remorseless and unyielding ever since.

Apart, that is, from when it wants to bully the Leveson Inquiry – and those witnesses who suspect (quite rightly) that they will be hunted down for all eternity if they testify against the tabloid press. Then human rights – for newspapers, at least – are fine and dandy:

Associated Newspapers is seeking a judicial review of Lord Justice Leveson’s decision to allow witnesses including journalists to give anonymous evidence to his inquiry into media standards.

The Daily Mail publisher wants to reverse a decision Leveson made following approaches from a number of individuals who claimed they wanted to give evidence anonymously without fear of reprisal.

In a claim form issued to the high court, Associated cites four legal reasons to overturn the anonymity ruling.

The publisher said it “fails to give effect to the principle of open justice”; that it would “contravene the principles of natural justice”; and that it infringes the rights of the newspaper group and others under article 10 of the Human Rights Act, which gives the right to free expression. It also argues that Leveson fails to identify a public interest to justify his decision.

Good, also, to see the Mail’s owners ticking off Leveson for not acting in the public interest – which Dacre defines as the freedom for newspapers to “publish what they believe is best for their markets” and “the freedom to identify those who have offended public standards of decency… and hold the transgressors up to public condemnation.”

So let us all join in defending Dacre’s human right to pillory us miserable sinners. After all, it’s good for us and it sells newspapers.

Over the weekend, Will Hutton offered a ‘modest proposal’ so bizarre that it must have left his colleagues at the Observer fearing for his sanity.

David Cameron, he suggested, should…

… travel to Germany and make a speech in German – however embarrassing – spelling out the choices. If Germany is unprepared to accept them, he should argue that the least bad option is not for Greece to leave the euro – but for Germany, whose economy is strong enough to take the shock, to do so.

He should say that while it was right for Britain not to join the single currency as it was previously constructed, if Germany were to act responsibly, Britain would peg sterling to a reformed euro and in the long run even consider joining the regime. Moreover, Britain would do this either way, he could argue – eventually joining a single currency in which Germany accepted its responsibilities or a single currency without Germany.

Now the idea that Cameron should offer to swap places with Angela Merkel at the heart of the Euro meltdown is, without doubt, genius. The Germans, I am told, feel cursed to stagger on endlessly chained to the corpses of weaker European nations. So… why not help out? Strap them to the UK instead!

But it’s Hutton’s tactics I worry about. Year after year, with consummate skill, he’s been inching [sorry, centimetring] Britain towards Euro membership.

Who can forget his moving plea from ’99 that the UK adopt the single currency because “we read the same bible, drink the same wine, haunt the same discos, play in the same Champions League” as our European neighbours?

Or his reassurances from 2002 that fears the Euro could crack were ‘scaremongering’ and ‘wishful thinking’? Or his masterful solution for the problem of one-size-fits-all interest rates (in a crisis, European countries survive by running up bigger deficits!)?

Or from November 2008, his Cassandra-like insight that only through immediate Euro entry – now, this minute – could the UK avoid ‘national bankruptcy’ and the ‘clutches of the IMF’?

Or perhaps most prophetic of all, his essay from just a fortnight ago, hailing European leaders for taking an ‘inspiring leap’ towards financial stability, by creating “a self-help club” in which every European country could be both strong and free?

But it’s the language thing that makes me fear Hutton is losing his marbles. Our PM may not be able to speak a word of yer’actual German, but he can do a hilarious German accent (this is taught to all boys as part of the British national curriculum). He even whipped it out on the campaign trail:

What’s more, he’s almost certain to push things too far by borrowing a costume from Prince Harry to make his big day in Berlin memorable for all concerned. The likelihood of embarrassment is overwhelming! He’s sure to come across more John Cleese than JFK.

No – what Cameron should do, obviously, is resign forthwith and allow Nick Clegg a fluent German speaker to take over. Clegg could then appoint a government of technocrats to prep the UK for Euro membership. I nominate one Hutton, W as our next Finanzminister….

Whatever else the Occupy protests (over 900 at the last count), have done, they have propelled the issue of inequality on to the front pages and into the political mainstream.  The idea of the ‘99%’ is brilliantly simple, pulling together every group and every person who has a nagging sense that they are losing out in the global economic race while others pull ahead out of sight.  

The case the protestors are putting basically an ethical one.  A world where the majority of the benefits of growth go to the few while the costs of failure, whether in the form of bank bailouts, of redundancies, or of cuts to public services are borne by the many is not, it seems, one that an increasing number of people want to live in any more. 

 If that fails to convince, there are other more prosaic reasons to care about inequality too. Inequality, at least at high levels, does matter to growth, to poverty, and to stability.  Here are five good reasons, drawing from recent economic research, for politicians to care about – and act on – inequality.

 One, inequality contributed to the financial crisis.  Debate rages about how much.  But it does seem clear that when real wages for the middle and working classes aren’t rising, as they weren’t in America for much of the 1980s and 1990s, and when aspirations are rising rapidly, partly because of the impact of the lifestyles of the super-rich whose incomes are heading North at a rapid rate, and when credit is cheap (thanks to the mega-profits being made in China due partly to low wages and growing inequality there), then an unsustainable credit bubble is only the click of a Wall Street button away. 

Two, (some) inequality is bad for economic growth.  This is one that economists have been arguing about for years.  But it’s clear that some inequalities – in access to education, to credit, to land in agricultural societies – are bad for growth, since they mean that the skills, energy and ideas of a large part of the population are being underused.  As growth becomes more about human capital and less about land and machines, this will only become truer. Inequality can also make growth less sustainable (in an economic sense), and make episodes of growth shorter than in more equal societies. (more…)

On Wednesday ODI was host to Tony Blair, giving a speech on ‘leadership’ and the work of his Africa Governance Initiative. 

There were, of course, predictable howls of protest from people furious that ODI gave a platform to the man who sent troops into Iraq. My view, for what it’s worth, is that Iraq was terrible  but that Blair also did many good things: huge investments in the health service and education, the minimum wage, the Human Rights Act, the creation of DFID, the increases in aid.  I’m unwilling to get into a game of trying to trade these off against each other, and Iraq doesn’t cancel out the good stuff as far as I am concerned.  But anyway. 

Blair talked about the importance of effective leadership – his main argument (very much informed by his own time in government, he said) was that ‘without a strong centre, nothing gets done’.  I found this quite a refreshing challenge to the usual focus in the development canon on processes of governance and democracy.  Ideal processes won’t necessarily turn out leaders who can actually act (one might cite the American constitution and Obama’s current trials as exhibit A here), while some leaders can do considerable amounts of good while presiding over very far from ideal processes (some might argue that Kagame falls into this category – I find it very hard to judge).

One wouldn’t want to push this too far.  Being able to participate in a political process that you trust to deliver, and not being subject to opression and fear while you do so, is a good thing in itself.  But it was a useful reminder that people matter in history, and that having people who can get things done, and who want to do the right things, is a crucial part of making progress happen.  As a part of effective leadership, my former colleagues at ActionAid and Christian Aid will be pleased to know that he put a great focus on the importance of governments being able to raise their own money through tax, and the huge importance of getting investment deals right so that governments benefit. 

Rightly, most of development is focused on what happens in societies and economies at large.  But I found it quite useful to be reminded that what happens at the top of governments can be about making good stuff happen, and we should not always just focus on governments when they start doing things wrong.

When the current British government took office, it decreed a limit on the number of special advisers that each minister was allowed to appoint.  Recent figures show that David Cameron has sixteen “spads”, Nick Clegg has eleven, and most other ministers have just one or two.  Overall, there are still fewer than eighty advisers wandering around Whitehall today.  Some civil servants probably think that’s still many too many.

Governor Isa Yuguda of Bauchi State, Nigeria, would beg to differ.  Today he announced the appointment of a modest 924 special aides…

Governor Isa Yuguda of Bauchi State, on Monday, approved the appointment of 94 Senior Special Assistants (SSAs), 20 Special Advisers (SAs) and 810 Special Assistants.

A statement signed by the Secretary to the State Government, Ahmed Dandija, also announced the appointment of 24 Directors-General in charge of various sectors of the state.

Yuguda also approved the appointment of 20 Deputy Chairmen and 82 members for the Local Councils in the state.

The statement added that all the appointments were with immediate effect.

One can only imagine that the administration of Bauchi State is about to make a great leap forward.  [H/T Teju Cole.]

Yesterday, I posted a preview of Thursday’s Security Council debate on preventive diplomacy, and predicted that it would be boring.  The meeting certainly generated a fair bit of blather, but it wasn’t all diplomatic consensus-building:

“When conflict looms, the world looks to the U.N. for a decisive response,” said British Foreign Minister William Hague. “In Libya… our swift action prevented a human catastrophe and saved the lives of thousands of civilians.”

Hague went on to say that the British government viewed U.N. Security Council action as “long overdue” on Syria. “The consequences of inaction would weigh heavily upon us if we turn a blind eye to murder and oppression,” he said.

German Foreign Minister Guido Westerwelle called on the Security Council to “send a strong message to the government in Damascus to stop the killing of its people.”

Not all Security Council members were on the same page when it came to international intervention, however. The representatives from India, Brazil, and South Africa criticized what they saw as overreaching by the United Nations in Libya. South African President Jacob Zuma was particularly critical of the United Nations for ignoring the peacemaking efforts of the African Union.

“Such blatant acts of disregard of regional initiatives have the potential to undermine the confidence regional organizations have in the U.N. as an impartial and respected mediator in conflicts,” he said.

Indian Minister for External Affairs S.M. Krishna said that the international community needs to let peaceful processes play out longer before resorting to the use of force.

“The use of force also leads to collateral damage,” he said. “In many places, the use of force has prolonged conflicts and the cure has turned out to be worse that the disease itself.”

Ouch.  It’s a sign of the ill-temper engendered Libya and Palestine at the UN that a debate on the motherhood-and-apple-pie issue of prevention got so tetchy…