If Your User Can't Use You, Do You Exist?

Jaron Lanier helped to invent virtual reality, played Laotion panpipes at the start of his lecture and then railed against open source ethics (that he also helped to create), the curse of free, the vapidity of web 2.0 and much else besides.

He also said:

"Software only exists in terms of user interface. Without that it can't exist."

I think that can be taken as a metaphor for almost any aspect of modern business. If what you do isn't glanceable, accessible and, to some extent, immediately usable, then can it and your business really exist?

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More

But What Reforms?

Wrong type of deckchair

When we started BOM back in 2005, identifying government waste was still a minority sport. True, we'd had Gershon Mk I and the Tory James Review, but on the other side there were plenty of Big Government types arguing that overall, the public sector did a pretty good job at a very reasonable price.

We are now in very different times. Our fiscal crisis is concentrating minds all over. The world and his wife now agree that the public sector is bloated and inefficient, with huge scope for efficiency savings. Or to put it another way, we could cut public spending with no appreciable decline in the delivery of public services.

How big are the potential savings? Regular BOM readers will be familiar with some of the key evidence.

First, we have the international studies comparing public sector efficiency in the UK with that overseas. The best known study is that published by the European Central Bank (eg see this blog), and that suggests we could save 16% of total public spending, or around £110bn next year.

Second, we have the analysis of public sector productivity published by the Office for National Statistics (eg see this blog). The ONS says that since 1997, public sector productivity has been falling by between 0.3 and 0.9% pa (depending on whether you adjust the output figures for so-called quality improvements). Yet over the same period, private sector productivity has been rising by 2.2% pa. Over a decade that kind of difference mounts up to a total public sector efficiency shortfall of well over 20%.

Third, we have the various studies that are now underway in Whitehall itself. They are largely secret, but Tyler understands that several big spending departments are currently going through their programmes and identifying a considerable margin of duplication and inefficiency. Just last week, we got the results of one such exercise - 15% waste on public service spending in London (see this blog).

And on the detail of possible savings, Hammersmith and Fulham councillor Harry Phibbs has just posted this excellent analysis showing precisely how Mayor Boris could save £93m and cut his precept on London taxpayers by 10%.

Drawing it all together, we can quite reasonably assume that 15-20% of public spending is wasted - and it may well be more.

The real question though, is how do we put it right?

As the ludicrous deckchair rearranging Gershon "efficiency" programme has shown only too vividly, we cannot do it through "better management". We've been trying that for decades, and it hasn't delivered. And neither is it any good having yet another slice and dice Whitehall reorganisation. We have to reform the public sector far more fundamentally than that.

But how? What reforms exactly?

We have always believed that the critical reforms are those that make our public services much more directly accountable to their customers: school vouchers and many more independent schools; the NHS broken up and replaced by competing social insurers; and local authorities made to raise the bulk of their own funding from local taxpayers (ie fiscal decentralisation).

Such reforms would give public service suppliers the kind of incentives that private service suppliers already have. And that's a key point - a point that's so obvious it often gets overlooked. Reforms that don't link the public sector's incentives to customer satisfaction are most unlikely to deliver improved efficiency. There has to be a direct pay-off in order both to stimulate new thinking, and to persuade managers to take the tough decisions on things like staff numbers and working arrangements.

Just one small problem - reforms like that mean breaking the power of Westminster and Whitehall. They mean reversing an entire century of centralisation.

Absent military defeat and occupation by a foreign power, HTF do we do that?

PS Tyler finally found out that BOM's comments provider, Haloscan, is heading for the scrapheap. So we've had to switch to a new provider called Echo. We'll see how it goes.

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More

But Not Yet

Hmm... I see what you mean

Everybody now agrees that public spending has to be cut significantly. But not everyone agrees on when. And despite what we may sometimes suggest on BOM, not everyone who says we can put it off is an out-and-out scoundrel.

For example, the FT's Martin Wolf is a virtuous man, and he has repeatedly argued the case for delay. Today he writes:

"What needs to be done depends on the state of the various economies, with the case for continued stimulus strongest in Europe... That point was made by Dominique Strauss-Kahn, managing director of the International Monetary Fund. He also made another one: if we exit too late, we waste resources in excessive public deficits and debt; if we exit too soon, we risk the devastating shock to confidence of a “double dip”. Given this asymmetry, we should not withdraw stimulus early."

It's a perfectly reasonable argument, but also a very dangerous one. Because that asymmetry Wolf highlights is much more apparent than real. In reality, it is by no means clear that delaying the cuts keeps confidence intact. Confidence could suffer just as devastating a shock if we delay - as the Greeks are currently discovering. The Greeks are now being forced into a whole raft of emergency cuts precisely because previous delays have undermined the confidence of financial markets.

Confidence is a delicate, little understood flower, and what nobody can predict with any certainty is how far we can go with our borrowing before it cracks (umm... can flowers crack?).

As things stand, the OECD says our official debt will reach 94% of GDP by the end of next year (gross debt). Even setting aside the fact that our official debt excludes all those off-balance sheet Enron items like PFI, 94% is very scary. As we blogged here, the IMF recommends we get that percentage down to 60% as a maximum. Anything higher risks the government finding itself in a position where it no longer has the flexibility to increase its borrowing should a future need arise. Which is where Greece now finds itself.

Unfortunately, far from getting our debt ratio down, our rampant public borrowing is currently adding to it at the rate of 13 percentage points pa.

And as we've blogged before (eg here), that borrowing is now feeding back into an alarming escalation of debt interest costs. By next year debt interest costs will consume nearly 10% of government revenue, up from just over 5% as recently as 2008-09.

Even worse, that escalation is taking place even though the financial markets have so far remained remarkably patient in terms of the interest rate they charge HMG (ie the yield on gilts). What will happen if the markets lose their patience and push those rates up?

As it happens, the IFS has just published some rather scary estimates of how that might play out (HTP Andrew L). They report a statistical analysis with quantified estimates of how government debt and structural fiscal deficits have affected gilt yields historically. They conclude that if our structural deficit is left at current levels - ie there are no substantive cuts - then gilt yields could "easily reach double digits" by end-2011.

Now, those yields are currently around 4% (10 year gilts), so that is one helluvan increase. Translating it into debt interest costs, it would mean that our prospective annual borrowing of £150-£200bn would generate additional annual servicing costs of £15-£20bn pa, rather than the £6-£8bn currently assumed. And of course, such costs are cumulative - three years of borrowing at 10% would add £50-£60bn pa to debt servicing costs. Or, £2 grand pa of additional taxes for the average household every single year.

As the man in the pic meant to say, 'Grant me chastity and continence, and do it now!'

PS The IFS work is part of their always excellent Green Budget. We'll be having a proper read and blogging it in due course.

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More

Glug Glug

The thing is, we don't have all the time in the world. 13 years of Labour misrule have left our economy holed beneath the waterline, and we need to get cracking on the repairs right now.

Consider what's going on down in the engine room of our long-term prosperity - private enterprise. When Labour took over, the UK was one of the most enterprise-friendly countries in the world: low and stable taxes, a highly flexible labour market, and relatively light business regulation. But over time Labour has chipped away at these strengths, and our relative position in the world rankings of economic freedom has lately been slipping alarmingly.

The best known of the rankings is that produced annually by the US Heritage Foundation. Its latest assessment has us slipping down to 11th position, way behind Australia, Switzerland, and even Comrade Obama's US (htp Ted B and A Reader). Click on image to enlarge:

Now, you may think our position is not a disaster, but the direction and speed of travel certainly is - five years ago we were 7th in the world rankings, and 15 years ago we were 3rd. Yes, 3rd.

And a key factor driving us down is the burgeoning government sector, both in terms of its size and the taxes required to pay for it. As we may possibly have mentioned once or twice before, Big Government squashes enterprise and ultimately makes us all poorer.

But right now, we have a problem. You and I may understand what's going on in the engine room, far below the promenade deck, but most of our fellow passengers don't yet seem to have understood.

So this morning we have those gloomy chaps at the National Institute forecasting a further rise in unemployment after its current mysterious pause, a renewed fall in house prices, a dip in consumer spending, and yet further over-runs in government borrowing. Yet at the same time, the passengers seem to remain full of consumerist cheer - the Nationwide Consumer Confidence Index rose by three points in January.

Talk about the Titanic.

PS Last night Tyler met up with a whole bunch of Tory Bloggers over a beverage or three. A very enjoyable evening, and as always, good to put faces to names. The high spot for Tyler was winning the prestigious "Thorn in the Government's Side" award. This hand-tooled award parchment will proudly hang alongside Tyler's other awards - his ten yards swimming certificate from 1959.

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More

Permission Marketing.

You can segment your target market with whatever parameters you choose, but unless you include "receptive", you're wasting your time.

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More

Next Steps

...into the darkness

As you may know, following a Freedom of Information request, HM Treasury has released an internal paper analysing international experience with so-called fiscal consolidations - ie how to tackle humongous fiscal deficits. Predictably, all the really interesting bits - including HMT's Next steps - have been blacked out (pic). This may be a crisis of historic proportions but we mere taxpayers are not to be trusted with HMT's real views on the choices before us.

Still, there are some useful snippets:

• Spending cuts are preferred to tax rises - "there is broad agreement in the literature that spending restraint is more likely to generate lasting fiscal consolidation and better economic performance than tax increases"
• Cuts should focus most heavily on public employment and welfare payments, which have featured in all major consolidations (eg see this blog).

Here's HMT's summary cuts menu, based on what's worked internationally (click on image to enlarge):

It will all be pretty familiar to BOM readers, and represents the mainstream consensus of what is needed.

Unfortunately, it's one thing to analyse international experience and understand what you have to cut, and quite another to take the all-important next step of actually wielding the scissors.

And on that score, events are taking a very depressing turn. Dave and George are now so rattled by their falling poll lead and Mandy's superbly brass-necked attack on their economic competence, that they're wobbling around all over the road. Apparently, they're even recruiting the utterly discredited Lord Stern to advise on "green growth" - aka taxing and regulating our economy back to the Stone Age.

A hung parliament doesn't bear thinking about. But even if - as still seems likely to Tyler - the Tories win, fiscal policywise it sounds very much like we're just going to have more of the same. Which, as we all know, means drifting along until we hit the rocks of a market panic. By which stage, inflation will be well out of the traps, the management of our most dynamic companies will have relocated overseas, and we'll have to endure a decade of cuts with no prospect of stimulating private sector growth on the other side.

And the next steps? After one stuttering term of Heath Cam, Labour squeak back in again under their new leader Commissar Balls. A fresh start for Britain - squeeze the rich, British jobs for British workers, and state direction of capital. Tony Benn officially installed as HM Treasure to the Nation.

O.M.G.

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More

Spending Money We Don't Have

Just wait until we see the card statement

The man who refused to buy more military helicopters back in the good times is now committing "to billions of pounds of extra defence spending". He's apparently going ahead with the Navy's new £5bn carriers, keeping Army strength above 100,000, and completing the Eurofighter and Joint Strike Fighter programmes.

And where, pray, is the money for all this extra spending coming from?

"A government source said there would have to be “tough decisions elsewhere”.

Ah. Of course. Tough decisions elsewhere.

But not apparently in the area of free personal care for needy adults at home. In a cynical attempt to buy votes among the elderly and their families, Brown announced at the last Labour Party Conference that he was ordering a huge expansion of the personal care programme. Yet according to the Directors of Adult Social Services it will cost around £1bn pa, whereas Brown has only come up with £420m. The rest? That will be down to those tough decisions elsewhere.

Not that Brown is alone. This morning we heard that nice but vacuous Mr Clegg promising to spend another £2.5bn pa on schooling for the underprivileged. £1.5bn will come from scrapping tax credits for all families on above average incomes - clear enough. But the rest will come from er... tough decisions elsewhere on er, quangos and inspection regimes... and stuff.

And then there are the Tories. According to the ever-helpful Mr Darling, they have made around £8bn of new spending pledges, including more single rooms in NHS hospitals and more maternity nurses (see this blog). But once again, the funding seems to be down to tough decisions elsewhere.

All of which raises the fundamental worry we've mentioned before: despite the direst warnings about the size of our national credit card bill, we don't yet seem to be ready for public spending cuts. Right across the board, our politicos have examined the entrails of their focus groups and private polls, and concluded there's simply no electoral upside in promising cuts. Which is why Brown is still dishing out new spending pledges, and why Cam is back-peddling furiously on his earlier promise of immediate cuts.

So how's it going to play out?

Well, if the politicos don't get a grip, sooner or later we will hit that sterling/gilts crisis we've blogged so often. At which point, we will end up being forced into an emergency package of cuts and tax increases just like back in the jolly old 70s. We'll have no choice.

Indeed, there is now a school of thought that Cam is back-peddling on his cuts promises precisely because of that. He knows the only reason there hasn't so far been a crisis of market confidence is that investors believe he will cut. But in political terms that means voters haven't yet been exposed to the real risks, so he gets no political credit for being tough.

Far better to back off now, ahead of the election, jangle the market's nerves while Labour are still at the controls, let the voters understand the real risks, and let them see Labour totally incapable of handling them.

You know, we hope that is the correct interpretation. Because it implies that Cam and George do understand the real problem.

But if we hit a pre-election market wobble, they'd better be ready with some convincing statements on their true fiscal intentions. The last thing we need is for them to get elected having already lost the confidence of the markets.

A very delicate flower, confidence.

Gudang grosir baju anak murah - harga pabrik !!
www.gudanggrosiran.com Read More