Forget high pay - the filthy rich don't get paid at all

Fascinating piece by Jenni Russell in tonight’s Evening Standard, on the back of an extraordinary statement by the International Monetary Fund. After 60 years as the guardian of Un-compassionate Capitalism, the IMF has decided that inequality matters – not because it’s unfair, but because it actually damages the world economy. According to the IMF, inequality was a factor in causing the financial crash. Because most people haven’t got much better off over the last 30 years, they borrowed excessively to raise their living standards, while the filthy rich got filthier and much richer. The logic is remarkably appealing – the burgeoning wealth of a minority causes things like house prices to inflate beyond all realism, and everyone else borrows money (partly against their overvalued houses) to keep up.

Russell pulls out some terrifying stats about how economic growth has primarily benefited the rich since the 1970s. In America, 58% of all growth in income since 1976 has fallen to the top 1% of people – and the UK isn’t too far behind. That might sound a bit dry, but the implication is real: most people haven’t got very much better off for 35 years.

The reaction in the media, and among the public, has focused disproportionately on pay. Not just on bankers’ bonuses and chief executive salaries, but even on headmasters and council staff. In fact, most of the rise in inequality is down to markets and control of resources – it is about the distribution of wealth, not salaries. The fact that Fernando Torres now earns more each week than the average person might make in 10 years might seem grotesque, but there are millions of football fans (and at least one dodgy Russian billionaire) who’d pay a small fortune to see him play for their team.

Pay has played its part in the growth in inequality, but the serious stuff is about finance and the control of resources. It is no coincidence that the rise of inequality coincides relatively closely with the deregulation of financial markets. In today’s world, a man (and sadly it is still mostly men) can make a fortune without doing an honest day’s work in their lives. Financial services, international bond markets, foreign exchange markets and mergers and acquisitions all have their place in the economy (as the fundamentalists at the IEA will attest), but when people start doing this just to enrich themselves, they end up stifling innovation, destabilising the economy and making ordinary people pick up the pieces.

But if you think the solution to this lies in higher taxes, or tough action by the UK government, you’d be sadly mistaken. Today’s financial elites are incredibly mobile – and if they feel victimised in one country, they’ll move on. That’s a big part of the reason that successive governments have been so soft on the demonised bankers – hit them too hard and they’ll take their spending and taxes elsewhere. If you want to solve a big, global problem like inequality, you need to get the whole world signed up, to overhaul the rules of global capitalism. That is a colossal task – but if the IMF is on board, then anything must be possible.

Memo to the Chancellor: Businesses need support, not bribes

It’s not often I find myself violently agreeing with a trade unionist, but these are strange times. According to the BBC, Sally Hunt of the University and College Union will “accuse ministers of prioritising billions of pounds in tax breaks for business as they triple the cost of university and axe funding for college students and help for the unemployed” at an anti-cuts protest today.

My instinct is that she’s right – but my reason for thinking that is quite different to hers. I’m not too interested in whether this is fair or just, because at the end of the day we will only create jobs for the young and the unemployed if we have strong businesses. It’s one of those perverse laws of the economy: the fate of business and worker, of rich and poor, are inextricably bound up with one another.

My problem is that giving tax breaks to businesses just isn’t a very effective way to create jobs. To see what I mean, you need to put yourself in the place of a business owner. The corporate tax rate only applies to a firm’s profits (assuming your business makes a profit). That’s all very well, but there are a lot of obstacles to actually making a profit: Can I afford the rent on my office? Will the VAT rise make my products too expensive? Where can I find the skilled workers I need? All of these problems – problems which the government can do something about instead of cutting tax – come with a huge risk. Now ask yourself: if you are thinking of starting a business, are you more likely to worry about a marginal amount of tax on your profit, or the myriad of risks and obstacles you need to overcome to make a profit in the first place? Would you want the government to be helping create an environment for you to make a profit, or giving you a marginal tax break on whatever profit you do make?

One of the lesser known features of this recession is that UK businesses are, in fact, sitting on vast piles of cash – and it’s not just me saying that, it’s the Chancellor, no less. Why should they be hoarding cash rather than investing it, and creating jobs? The answer is complicated – it involves many things, including risk, uncertainty, structural problems with the UK economy – but I find it hard to believe that corporate tax rates are an important consideration. Of course, the government deficit does play a role in creating an uncertain environment, but remember: cutting taxes makes the deficit worse. Surely Osborne needs some better ideas than cutting taxes for business and cutting spending on everything else?

The London Evening Standard revealed yesterday that Osborne and Vince Cable were also planning to bring back Enterprise Zones to help stimulate deprived areas by offering temporary tax breaks to businesses. This policy from the 1980s looks like a great idea on the surface, but it was generally seen as a failure (with the exception of Canary Wharf). That’s because there is one very big problem with Enterprise Zones – the tax break is temporary. Businesses might come into the area to take advantage of the tax breaks and new office space while they’re available, but there’s nothing to stop them moving away again once the offer expires. The logic is the same as that used by Ireland, which cut its corporation tax to attract foreign companies. It worked brilliantly while things were going well, but as soon as the economy took a turn for the worse, many of the companies fled. It looks as if Osborne hasn’t learnt this lesson.

But what of Canary Wharf? It was an Enterprise Zone in the 1980s, and today is still a thriving economic hub, long after the tax breaks expired. The main reason that Canary Wharf took off is that it is a great place to do business: affordable, swanky offices, close to the centre of London, with access to world class skills. What it needed was new buildings and infrastructure to replace the decay of the docklands – not so much a tax break. When the tax break ended, Canary Wharf was still a great place to do business, unlike all the other Enterprise Zones. The FT tells us that office space costs more in Birmingham than in San Francisco, a problem that a temporary tax break will do little to solve. It would be much better to spend the money on new infrastructure, to provide a lasting legacy for businesses.

That is the fundamental problem: the government is offering short term bribes to businesses, while ignoring the underlying weaknesses in the UK economy. If you don’t tackle the real problems – skill shortages, bad infrastructure, deep uncertainty – you won’t get any growth at all, let alone balanced, sustainable and equitable growth.

The changing face of Cleggmania

Cleggmania used to be like Henmania – everyone loves a plucky underdog with a fresh face and floppy hair. He even carried through the comparison by proving to be a bit of a let down at the crucial moment. But these days, Clegg’s mania seems more like the type that a psychiatrist would treat.

In some ways, I feel sorry for the guy. After all, once the Lib Dems had suffered a disappointing (and deeply unfair) setback at the election, he didn’t really have much room for manoeuvre. The decision to enter the coalition was never going to be popular, but the alternatives were unthinkable.

Since then, he has made some pretty spectacular blunders. Even if you are prepared to put aside the tuition fee debacle (some pundits would insist his only mistake was making the pledge in the first place!), his list of blunders since May is incredible. It got so bad this week that Ed Miliband started quoting the Lib Dems’ own statements against the rise in VAT – talk about writing your own death warrant!

But one thing really caps it all – Nick Clegg is unbelievably, inexcusably patronising. He seems to preach interminably about building a fair society, about creating an open political process – and then does the exact opposite. And most infuriatingly of all, everything he does is “liberal”. It’s as if he has an exclusive right to the word liberal, just because it’s in the name of his party.

That might sound pretty trivial if you’re a prospective student, or a public sector worker facing unemployment, but there’s a point in here. The Lib Dems have had to make difficult choices on big issues, and as a junior coalition partner they have to pick their battles – as Vince Cable knows all too well. The battles they’ve picked have too often been driven by their obsession with a narrow strand of liberalism – an issue that doesn’t tend to interest very many people. Electoral reform, civil liberties for terror suspects, freedom of information and the like are worthy issues, but they are not ones that matter much to the electorate. (Indeed, electoral reform was my number one issue at the election, but that says a lot more about me as a person than about the voting system as a political issue).

Meanwhile, on the issues that matter most to ordinary people – the deficit, healthcare, education and so on – Nick Clegg and his party have surrendered meekly. Many people, myself included, hoped the Lib Dems could moderate Conservative radicalism in these areas, but they haven’t. They’ve sacrificed this role to push through a few pet Liberal policies. As a result, we’ve seen VAT rise, eye-watering cuts to some public services, and a retrenchment of state support for higher education, and we await the impact of sudden, drastic reforms of how schools and healthcare are run, with the Lib Dems forced to defend each and everyone. It’s no wonder Mr. Clegg is so unpopular.

Free press, so where's the free debate?

The media is having a pretty stultifying effect on Britain at the moment. And it’s not just the usual candidates – the Daily Mail, the Murdoch press and so on – even some of our more reputable media outlets seem to be letting us down badly. We are used to the jarring experience of Paxman or Humphrys turning supposed “interviews” into egotistical games of cat and mouse, pinning their guests down on the narrowest of issues. Of course, they would tell you that it’s about providing proper scrutiny of public figures – but while there may be some truth there, the overwhelming effect is to stifle any kind of honest, constructive debate. As George Monbiot put it in his provocative article before the election, the notion of the press as a democratising force is a “pernicious lie”.

The media has extraordinary scope to present the same issue in different ways. Take the example of NICE, the body that was meant to decide which drugs the NHS could afford. It withdrew funding for some very expensive cancer drugs to focus resources on more cost effective treatments, an excruciating but ultimately sensible decision. Of course, the press has only to pick up the case of one unfortunate victim of this decision, and sensationalise it without any regard for the context around the issue. With public opinion whipped up, ministers then have no choice but to overrule NICE’s professional decisions. Ultimately, this ends up costing lives.

And this type of thing isn’t confined to the NHS. The media can make VAT progressive or regressive as it pleases, can manufacture or cover up a debt crisis as it pleases. Given the right figures, it can even make unemployment go up as well as down.

Of course, people will argue that the media just reflects what the public wants to hear. But surely the media plays just as decisive role in shaping people’s opinions as people do in shaping the headlines. It is easy to stir up anger about bankers bonuses, or abject poverty, but much harder to get people interested in the bigger picture behind their lives. In as much as this, the media plays a decisive, and often damaging role, in our national life.

But what is the alternative? For that, we have to look to characters like Vladimir Putin, Robert Mugabe and Laurent Gbagbo – not to mention Charles de Gaulle. Sepp Blatter’s warning about the “evil of the media” probably wasn’t motivated by fears about them stifling intelligent debate. Russian journalists are not normally bumped off for failing to be objective enough. A free media is an essential foundation of a free state, and not without good reason. A series of biased and simplistic debates is better than no debate at all.

My guess is that there are two ways around this. First, journalists could take it upon themselves to become more balanced and objective. But while there are many excellent people in the media doing this already, they are unlikely to have the loudest voice in a world where sensationalism sells.

Second, we, the readers, could become more educated, and better able to pick out the real issues from the hype. But we don’t choose that ourselves – it can only really happen on a large scale through effective education. We all learn a wide range of things at school – from how the weather works to the instruments in an orchestra – but we learn virtually nothing about how our society or economy functions. Under such circumstances, you can hardly expect us to be prepared for sophisticated debates about our future. My suggestion – instead of patronising young people with community service, introduce a compulsory post-school programme dedicated to understanding how politics, the economy and society works.

Tuition fees - sustainable funding or cultural vandalism?

MPs will vote tomorrow on legislation that will completely transform the face of higher education in the UK. With journalists promising us a day of ferocious debate in the Commons, and students set to continue their protests, we are set for a day of unpredictable drama. But amid the anger, recriminations and drip feed of half-baked concessions, there’s a real danger that we’ve collectively lost sight of what we’re actually debating here.

If passed, the legislation will complete a remarkable turnaround in the way we fund our universities. When Tony Blair came to power just 13 years ago, a university education was free for anyone with the ability, inclination – and luck – to make it into higher education. This will be the third time that politicians have increased tuition fees since then – but the current hike in fees will be by far the most significant, because it has shifted university teaching decisively towards a free market.

The most important figure in this debate isn’t the £9,000 cap on tuition fees – it is £0. That is the amount that the government will contribute towards an undergraduate degree (except for science, technology, engineering and maths subjects, which will still receive a reduced government subsidy). The significance of that fact is hard to overstate: for the majority of students, their education will not be a matter for the state. That doesn’t quite make it a free market for higher education, but it isn’t too far off.

To put that another way, the government is cutting funding for university teaching by 80%. To my knowledge, that’s the biggest cut to any significant area of spending, and it makes the eye-watering cuts to other areas of public spending (defence springs to mind) look like rounding errors. To my mind, this is what we should be debating: why should the higher education budget be cut so dramatically while Helen Mirren continues to receive her winter fuel allowance, while we build two brand new aircraft carriers.

But before getting into that, let’s make something clear – there is an uncomfortable fact about higher education that both the students and the opposition would like to ignore. Our universities need more money. Like it or not, our livelihoods increasingly depend on a global knowledge economy, in which countries like ours can only compete through skills and innovation. This has created hysteria in some parts of the media (both left and right), but it is a cold, hard fact. At the latest count, 48% of jobs in the UK were in knowledge-intensive industries, while only 30% of us have degrees. Of course, the knowledge economy isn’t the exclusive domain of graduates, but degrees certainly help. We’re slipping down the international league tables in terms of graduates, and this slide will lead us to economic stagnation unless we can improve our universities.

Given this need for extra cash, and the strain on the public finances, it was always inevitable that students would have to contribute more towards their degrees. In many ways, raising fees to provide better degrees would be a good solution – and the mechanism for paying tuition fees out of your salary that Clegg, Cable and Cameron have pinned their argument on is essentially a sound one. But there’s one slight problem – the increase in tuition fees isn’t going to go towards an improved education, but (mostly) towards covering the funding the government is taking away. The consensus seems to be that universities will have to charge around £7,000 a year just to stand still under the new arrangements. This is all very well for the top institutions - although Oxford and Cambridge already face a shortfall of £8,000 per undergraduate, which they make up out of donations. But less glamorous institutions may not be able to attract students at £7,000 a year, which would mean fewer graduates and bad news for the economy.

So why is all the attention on the fees, and not the disproportionate cuts in government support for universities? There is (it seems) an unspoken consensus among political parties that taxpayers shouldn’t subsidise students through an education that will ultimately increase their salary. That this simplistic argument has become widely accepted is a fatal – and stupid – mistake.

First, look at a plain numbers argument. We have a progressive taxation system - so if graduates go on to earn higher salaries, they pay more in taxes, not just in absolute terms but as a proportion of their income. An investment in higher education now should pay off in ordinary tax returns later.

Second, an economic argument. Without enough graduates, our economy will struggle to grow. That doesn’t just affect potential graduates – it affects everyone, because jobs in high-tech industries generate jobs and economic activity for everyone else.

Third, a cultural and moral argument. An educated population is healthier, more resistant to political tyranny, and creates better collective cultural outcomes. Society as a whole benefits from sending people to university. That means that there is a case for subsidising university education – not the whole amount, but part of it – even after setting aside all financial and economic arguments.

How on earth could an advanced society have forgotten such basic principles? How could a legion of politicians, all of whom benefited from a free university education, be guilty of such a collective abdication of responsibility? And among all the talk of broken promises, does this amount to a betrayal of a whole generation of young people? I doubt very much that tomorrow’s debate will shed any light on this.

A Bigger Picture

Reading the news is a pretty bleak experience these days. As if the story at home wasn’t bad enough, things are even worse abroad: papers speculate about which Eurozone nation will be the next victim of the bond markets; terrorist plots and rogue states spring up as if we were in a James Bond film.


For all the talk of a new world order, the collapse of the Euro and even the occasional touch of anarchy in the UK, no-one is expecting very much to change. Make no mistake – these are harder times than we’ve seen in decades (unless you happen to be a Conservative Lord) – but we’re British, and we don’t do revolution. A watered-down reform of the voting system here, perhaps a step back from European integration there, but we have very little appetite for any fundamental change. If the combined force of the financial crisis and the MPs’ expenses scandal can’t shake the system, what can?


This line of thought may well be right – it almost certainly will be for the foreseeable future – but this type of complacent inertia is extremely dangerous. History is littered with tales of the rise and fall of empires. Nations and world orders have been built out of ingenuity and strife, through a series of ideas or on the back of a single figurehead. Just as species come and go in the evolutionary game, as corporations expand and collapse through a creative process of destruction, no single nation or way of life is invulnerable.


The longest period of sustained peace in recorded human history – the Pax Romana – began 2,000 years ago, after one of the bloodiest civil wars the ancient world had known. The Roman empire was advanced, all-powerful and ruthlessly efficient. To historians of the time, it must have seemed inconceivable that this Roman global hegemony could ever be broken. And yet, it was not some advanced force that brought down the world’s greatest empire, but a series of backward barbarian hordes. Rome succumbed to complacency, a pathogen bred by centuries of success and stability.


Of course, this time things are different. Democracy, we presume, is different to the litany of empires that decorate the annals of history. Empires are fixed in their values and aims; democracies can change their spots to match their surroundings. Once democracy has taken hold, it is the only game in town. There’s no going back – not for long, at least.
When Francis Fukuyama heralded the fall of the Berlin Wall as the end of history, his claim was given a certain plausibility even at a time of unbounded optimism.


Like so many people, I would like to think that democracy can last forever – albeit with a fairer voting system, and a more reliable link between people and power brokers. But that kind of wishful thinking cannot be taken for granted. The very nature of democracy should preclude complacency in favour of continuous progress, but somehow that doesn’t seem to be the case. The threats to the democratic world are greater now than they have been since World War 2: China’s model of governance in the national interest appears far more practicable than any Marxist ideology; religious extremism breeds off ignorance and apathy in a way not seen since the Nazis.


A Chinese friend used to laugh at me when I defended the rights of the preachers of hate. I’m fairly sure that a fair number of extremists were also appreciating the joke, in more sinister fashion. I still believe I was right about this – but we can afford to show clemency to self-avowed enemies of democracy only if we are consistent about it. There is either a war on extremism, played out within the reasonable norms of conflict, or we meet hatred with unstinting tolerance and reason. The moment we start compromising our ideals – launching rockets with one hand while upholding the scales of justice with the other – we are at our most vulnerable. We may have learnt about the perils of complacency in international warfare, but we are a long way from discovering the courage of our convictions.

A Liberal Cacophony

I did something I haven't done for a long time last night - I watched Question Time on the BBC. I say watched, but that suggests I meant to do it - in truth,  it just caught my attention, despite my best efforts. I'd given up on Question Time around the time of the MPs expenses scandal, when it ceased to be a place for airing arguments and holding leaders to account, and became an outlet valve for the nation's angst. It was also around the time of Nick Griffin's infamous appearance on the show, soundtracked by a cacophony of ineffectual and slightly self-conscious affirmations of liberal values. Watching a room full of people unleash their moderated fury at Britain's premier racist was a bit like trying to make a phonecall at a rock and roll show.

Events this week have thrown this soft core of liberalism back into the spotlight. The week started with the latest installment in the Wikileaks saga, continued with another series of heated student protests, and climaxed with a farcical exhibition of global "politics" in Zurich.

My instinctive reaction to the unprecedented leak of US diplomatic cables was one of disappointment and some distress. We tend to accept that governments need the freedom to operate in secrecy, in a world of uncertainty and competition - and this is true to a large extent. But as far as I could make out (and don't think our government doesn't have a similar stash of information on file), very few of the revelations were in the least bit surprising: Russia is a mafia state; Saudi Arabia doesn't like Iran; Berlusconi is a bit shady. Well spotted folks. The revelation I found most interesting was actually the most comforting - China, it turns out, has noticed that Kim-Jong Il is a bit mental. Why should all this information be classified? Don't tell the world where our nuclear submarines are, but equally don't sit on a vast pile of fairly benign information. The more I reflect on the Wikileaks revelation, the more I start to wonder whether it might actually be a good thing for the world's secret squirrels to open up a bit.

There's no excuse for the secrecy surrounding FIFA's betrayal of world football on Thursday. Nor is there any justification for England's representatives (and a number of other nations') feigning ignorance of the blatant corruption until after they'd lost the vote. Liberal nations should seriously reconsider their membership and tacit endorsement of Sepp Blatter and his consortium. Politics and sport shouldn't mix, but football is already infected by the politics bug.

In short, I think the liberal majority needs to toughen up a bit - and by liberal, i mean conservatives and socialists, as well as most of the western world. The world isn't unipolar (or even bipolar) anymore. There are a lot of different ways of thinking out there, and we would write them off at our peril. But those of us who think we're right to champion tolerance, freedom and moderation need to let people know how right we are. Our short term future has been set out by a coalition agreement that no-one voted for, and yet we find it too inconvenient to do anything about it. Just like Nick Griffin, we make a lot of noise, but not a lot of worthwhile points.

So imagine my surprise when, from the floor of Britain's flagship talking shop, came one of the most solid liberal punches I have heard in a long time. Step forward John Sergeant (fast forward to 3.25), the old BBC heavyweight now best known for his dancefloor antics. As Danny Alexander warbles away, weaving an  incoherent argument about minor details while the big picture is gaping, Sergeant patiently waits his turn. Finally, given his cue by the self-important host, he pounces. "This is a pathetic position." If you can't come up with the right policy, "leave the government." Exactly. It's a parliamentary democracy, not some national PR front.