Wednesday, 30 January 2013

The real reasons for Britain's economic malaise

I've spent some time recently carefully re-reading Alistair Darling's (actually rather good) memoir of his time as Chancellor, Back from the Brink (above). Well, I've been on holiday. What else can you but kick back with a serious account of the financial crises of our times? But I digress.

What stands out very, very clearly from this memoir are the real reasons for the economic crash, and the reasons it's proving so difficult to dig ourselves out of it. Of course, in popular mythology this is all due to governments having borrowed too much, and British mortgage lending that got out of hand and led to an inevitable correction in the housing market - as it always does.

Almost none of that is true.

As Darling's account makes clear, there was a real, specific, particular and terrifying moment when the American banking system imploded - from Bear Stearns to the collapse of Lehman Brothers on September 15, 2008 - and it was this that brought the whole world to the brink of financial collapse. Think that ATMs will always give you cash? You'll think again when you've read Darling's account of 7 October 2008:

By the time I landed in Luxembourg [for a finance ministers' meeting], RBS [the Royal Bank of Scotland] was worth 40 per cent less than before take-off. Dealings in its shares had been suspended twice on the London Stock Exchange. My private secretary Dan Rosenfield and my special adviser Geoffrey Spence called me out of the meeting... to say that Sir Tom McKillop, the RBS chairman, needed to speak to me urgently. We cleared a room so that I could take the call. When I put down the phone, Geoffrey asked, what did he say? 'He told me that his bank is going to go bust this afternoon. And he asked me what we were going to do'.

And that's where the epicentre of the crisis lay - not in Whitehall or in your living room. Two facts (rather than assertions): almost all British banks' bad debts were entered into outside the UK, busting the assertion that UK mortgage lending was out of control. And, secondly, both governments and households had by no means unsustainable debts in the years leading up to the crisis. Government budgetary policy should probably have been a bit tighter, it's true. And households' mortgage debts were still going up  - lower house price rises would have been highly desirable. But Gordon Brown's reign as Chancellor ended with debt lower than when he started, and private credit card and other outlays were falling, not rising, before 2007-2008.

But Britain's economic crisis was not about government debt. Or personal debt. It was about banking exposure to the US banking and mortgage system. Get that truth wrong, and many other intellectual failings inevitably follow.

Counterintuitive? Yes. But the reality? Yes again.

Tuesday, 29 January 2013

Externalities and spillovers in the wilderness

 Those of you who're avid readers of the blog (thank you) will have noted that I'm just been to New Zealand. One of the highlights was the Routeburn Track, one of New Zealand's 'Big Nine' walks. It was extraordinary, taking us from beech forest, through waterfalls, alpine lakes and jagged peaks and back down to water temperate valleys again. I loved it.
There has, of course, always got to be at least some wailing and gnashing of teeth - or it wouldn't be Public Policy and the Past. What provided it here was the presence, right next to our rather spartan Department of Conservation Huts, of what could only be described as four star guesthouses. With helicopters to bring in the orange squash. I kid you not. Flushing toilets? Lovely cooked dinners? Sherpas to move your stuff? Tick, tick and tick again. Expensive, of course, at about £600 for three days, but popular enough to prove a great big beacon of how rich, comfortable - and divided - we've become. Take a look at my tourist shot above (all rights reserved, naturally). You wouldn't believe the luxury - right in the middle of some of the remotest places on earth.

I was a bit put out, to be honest. It seemed to me that here was a classic example of what economists call externalities and spillovers - consumption and production choices that have their effects (often deleterious effects) far outside of the decisions to buy and sell. All provided by great big conglomerates who have lots of such interests to manage. What was the 'spillover', I hear you ask? Well, I'd travelled for days and days to uncover the wilderness with some like-minded walkers, and there were a load of showered, camera-toting hotel-dwellers laughing it up in my eyeline. An untouched paradise it wasn't.

Now, there has always been guided walking on these New Zealand tracks - many of them started out as private enterprises, unlike most of the National Parks and suchlike in Europe. They're really busy, and they can take on the feeling of a bit of a motorway even without these A-lister lodges. And there's nothing wrong with getting neophytes out in the countryside, when they might have been afraid to venture out on their own.

But these latest mega-huts? They're ruining the whole spirit of the thing. Or, alternatively, I just might have been jealous without a shower and a nice glass of New Zealand wine to ease my aching back every night. You be the judges.

Monday, 28 January 2013

Let me invite you to the nightmare of 2025

Let's peer into the future for a moment. It's quite possible it will look like this... An independent Scotland. A rump England-Wales-Northern Ireland confederation, with domestic politics all settled within those three countries, and very few budgetary transfers between them. That strange, ragged entity won't be a member of the European Union - though Scotland will, probably on worse terms than it is today.

That's where the last week's politics are taking us. You will note, of course, that every single one of those end-points is totally the opposite of the Liberal Democrats' passionately-held views, but that's a story for another day. The Prime Minister's speech on Europe (above) was an attempt to move a huge unexploded bomb - that marked 'Europe', which has threatened to destroy the Conservative Party for nearly three decades now. But it makes it rather more likely that more pro-European Scots will vote to leave a United Kingdom that may exit the European Union. The last few months had seen the Scottish National Party on the back foot, forced to accept that they will have to apply for re-admission to the European Union. Now they might be bundled out of it anyway, by their English cousins. So there's less to lose: and unionists have one less weapon to use. It's an unforgiveable oversight and blunder by a so-called Unionist Prime Minister. It might benefit his party in the medium term, permanently in charge of an England and with enough votes at Westminster to pass 'English votes for English laws'. But at what cost to their identity, and their very being as a 'British' party in the long run?

It's yet another of those reckless gambles that the Prime Minister excels at - and which have got him out of tight corners before. One day, his luck will run out. What if there is no renegotiation, and his own previous veto means that the new Euro architecture that we so desperately need is settled outside the remit of existing EU treaties? What we will he have his referendum on then? Will he just say, 'sorry, there hasn't been a new settlement, so there's nothing to vote on'? On the other hand, what will he do if he gets a lot of what he wants - some concessions on domestic legislation, on the City of London, trade agreements, the supremacy of British law (though I doubt he'll get anywhere on those last two)? Will he recommend a 'yes' vote, and leave himself isolated from almost all Conservative MPs? This column finds it hard to believe that any British Prime Minister will threaten to lock his country out of this biggest trading bloc in the world, while simultaneously losing influence in Washington. Harold Wilson wouldn't do it; James Callaghan wouldn't do it; Margaret Thatcher wouldn't have countenanced it. Hardly a list of Euro-enthusiasts, is it?

Meanwhile, if he does recommend a 'yes' vote (as his speech said he might), Mr Cameron will be in danger of destroying his party. That's exactly what Sir Robert Peel did over the Corn Laws in the 1840s. The clock is now ticking on the most momentous choice of all: Mr Cameron may have discomfited Labour, UKIP and the Lib Dems all at once, but the price may have been to place a date and a time on his eventual removal from office.

All of this leaves the United Kingdom in rather more peril than it was in December. Scottish independence is now a few notches closer (though still not all that likely), and Britain's place in the European Union is now at risk. All for a few points in the opinion polls. It is a nightmarish vision: a poorer, nastier, more insular, increasingly boarded-up rump of three countries thrown together by history, all bobbing about in the North Atlantic, with dimmer prospects and fewer allies.

That's it for the Ghost of Politics Future. But remember: this nightmare scenario isn't inevitable. We can all still change it. In the deepest possible sense, it's up to us.

Saturday, 26 January 2013

Top five New Zealand misses

Now, I'm going to be a bit tongue-in-cheek today. I'm going to talk about some of the flies in the New Zealand ointment. Actually, they were in some ways the bit of grit that made the oyster, if you know what I mean, but that didn't make them any less annoying for all that. It turns out that paradise isn't entirely perfect, and I'm going to be talking about some of the political economy and governance elements of that imperfection over the next few days. But, for now, here are five things that a tourist in that land at the edge of the world could really do without:

1. Rural Kiwi drivers. Honestly. Kiwis are the nicest, most polite, most formal, egalitarian people in the world. Put them in a series of bashed-up Hondas on rural roads, and they become devil drivers of a series of blacked-out 'chaser cars' that try to (a) climb up your own exhaust, and (b) run you off the road. It comes to something when you can't brake and let people past, because they're driving so close to you that you can't even see their headlights. Slow down, people.

2. Glacier towns. Fox Glacier? The Franz Josef Glacier? Extraordinary, blue-white monsters of ice that come down so close to ground level that you feel you can almost touch them from the road. Definitely worth a visit. The towns next to them on South Island's west coast? Erm, not so good. You know those ski towns that you can go to, out of season, full of expensive and not-so-atmospheric pubs? That's what you're looking at here. Go to the glaciers; then get out of town.

3. Food on the road. Kiwi cooking used to be notorious. Beef Wellington again, sir? Why not? Those Better Britons of the South Seas could afford to have meat and two veg every single day, and they were going to damn well make sure that they got them. These days, of course, there's a lot of Pacific and Asian-fusion food in city restaurants, and you can eat pretty well across the board (albeit expensively, if you've got a pocket full of weak old sterling). But on the road, and especially in rural areas, requests for, oh, I don't know, vegetarian food can be met with a blank stare. And fish 'n' chips are everywhere. I mean everywhere. I don't mind a fish supper, but honestly - some villages seem to live on the stuff. What a shame.

4. Auckland's Central Business District (above). Auckland, that city of sails, sits on a beautiful volcanic isthmus. It has stunning oceans on both sides, and a green walking route between the two shores. But cheap land and a drive to have one's own plot has seen the city sprawl, and its CBD take on the character of a small and very American city - a grid of anonymous office blocks broken up only by the pointy assertion of the Sky Tower. Another pity, I am afraid.

5. Queenstown Lakefront YHA. Most New Zealand backbacker hostels are wonderful - especially those run by BBH, the best of the hostel chains' umbrella booking groups. Lots of eccentric houses, wharehouses, factories and stately homes have been turned over to the quirky use of the travelling young (and poor, or thrifty). But Queenstown's second YHA is a sprawling labyrinth of tiny rooms, niggly little notes and a modernist monster of a cooking and living deck. Noisy, crowded and a bit claustrophic, it's one to be avoided. Nice staff: shame about the hostel itself.

Honourable mention/ near miss: sandflies. Yes, these guys bite you. Yes, it's itchy. But anyone who's ever had to live with the north of Scotland's plagues of midge knows that the odd slow-moving little guy isn't nearly as bad as the Highlands' curse of curses. So sandflies don't make it into the miss list. Sorry, but there you are.

Next week - New Zealand's political economy. Look, I could write about George Osborne's fiscal policy, but I might blow a fuse.

Thursday, 24 January 2013

My top ten New Zealand hits

Well, I'm back.

I've actually been on my travels a bit since I last wrote here - for a month's holiday in New Zealand (above), would you believe. Now, it's an extraordinary country, and impossible to summarise. Is it Scotland in the South Seas? A warmer England? An American satellite? Another (and remoter) Australian state? Or a mix of all of those things, with a dash of idiosyncratic Kiwi something running through the mixture?

Well, I don't know. To be honest, I'm still a bit overawed by the experience of rushing through an entire country in just four weeks. But I'll do my best to turn travel guide and pick up my top ten hits. There were some misses, of course (I'll come back to these tomorrow), but in general it is an extraordinary place. Especially notable? Well, try these:

1. The Routeburn Track (and other Great Walks). Well, this really was a walk. Up to the Routeburn Falls, across the Harris Saddle, then through the most extraordinary Alpine landscape looking across at the Darran Range, and then on to Lake Mackenzie before falling through a beech tree landscape to the roadway at the Divide, it's a two- or three-day walk that's enough to take your breath away. Jagged mountain peaks? Check. Bright blue and green lakes? Tick. Lovely company at the huts? You bet.

2. Napier, art deco capital of the world. Now, there's not that much at Napier if you don't like Art Deco architecture. I must confess that I'm fascinated by it. A destructive and deadly earthquake in 1931 meant that the whole city was rebuilt along just those lines, with all the clean Hercule Poirot-style modernity that involves. Bright colours, a laid-back attitude, a great modernist hostel and a quiet beach lined with fantastic Art Deco stages and the National Aquarium... I couldn't resist it. Reader, it was great.

3. Nelson's pubs. Now, Nelson, at the 'top' of the South Island, has a bit of a Wild West feel to it. A grid system in the centre of town, hot weather and its role as the entry point to the Abel Tasman National Park all give it something of a frontier feel. Me? Well, I went dancing to some gypsy jazz at The Free House - a pub with lots of good beers on tap, a yurt for bands in the garden and a lovely feel all round. It got a bit hot and sweaty in there by the end of the night, but it was all sorts of fun.

4. The Otago Peninsula. I have to confess that this was where I felt most at home. This may well have been because the outdoors looks just like Cornwall, allied to a lot of pubs, bars (and fish and chip shops) that feel just like you're in 1950s Scotland - a fact explained by the Peninsula's proximity to the 'Scottish City of the South Seas', Dunedin. But it's a beautiful coastline, it's got two sorts of penguins (including the rare yellow-eyed guys), and lots of empty beaches. I sat on a beach with wild penguins. I opened my mouth in joy like one of The Muppets. It's not often you can say that, now is it?

5. Kayaking with dolphins. Yes, I know this one's a bit corny, but there's a reason some events are laid on... It's that tourists love them. And as I paddled out of Akaroa near Christchurch with The Educator (read her blog here, by the way), and as two sets of dolphin mothers brought their rare calves right up to us, I couldn't believe my luck. Yes, my arms hurt from the kayaking. No, I didn't regret it.

6. Wellington's waterfront. Now, I don't mind an alcoholic beverage from time to time. Nor am I averse to some fine dining. Or sitting out in the summer sun while doing both. Where to do this in New Zealand, you wonder? Well, look no further than the reclaimed waterfront of the capital, Wellington. This city can be so windy that they put ropes out in the street. I am not kidding you. But on a lovely January summer's day, it was a boon to sit out there having a 'relaxed' Friday evening. It felt a bit like my own adopted home of Bristol, actually, with all its entertainment-by-the-water. But let me tell you: it was no worse for all that.

7. Wanaka and Queenstown's lakes. Wanaka and Queenstown have got reputations as 'party capitals', or just as places where you equip and re-equip before you head out into the wild. One expects to see loads of twenty year olds hanging around in sports gear, shouting 'sweet' and 'wicked' (sorry if you like those expostulations, by the way). But they're actually lovely places to sit on a sunny afternoon, by the sparkling waters of Lake Wanaka or Lake Wakatipu. The water is extraordinary, and the moutains rise from the lakes. It's a sight most Europeans (or at least most non-Swiss Europeans) will gape at.

8. Flying over Mount Taranaki. Mountains, eh? You wait ages and then hundreds of them come along all at once. But the most impressive, the most stunning, the (well) most mountain-like of the lot is Mount Taranki on North Island. We only flew over it, on a very clear day it's true, but it stands sheer from the plain, shrouded in snow at the top and more than a little sense of danger. For all the reasons Peter Jackson set his Lord of the Rings adaptation in his native New Zealand, the presence of a very real, pointy and brooding Mount Doom slap bang in its middle most have been near the top.

9. Christchurch's Re:Start shopping centre. More about this in a future post, but just to say here: it was so heartening, and so humbling, to see a new city centre rise from the rubble of the old. Right next to Christchurch's fallen cathedral, and to an old city centre reduced in many parts to dust, here was a load of shipping containers which had become a multi-coloured riot of shops, coffee bars and buskers' havens, full of flowers, hope and (yes) a five-a-side football pitch. It filled me with hope, and that's not an easy task either.

10. Pancake rocks and the Punakaiki rainforest. Want to feel like you're in Jurassic Park 4 (or 5 or 6)? Look no further than one of the world's densest and most impressive areas of temperate rainforest. You don't need all that heat, all that danger, all that trekking, to see a rainforest and be awed by its primeval sense of time failing to pass: you just need to buy a 'plane ticket to New Zealand. On a windy, silvery night on a wild coast, surrounded on all sides by sheer banks of silent forest, I certainly thought that I had found a lost world, as well as a beautiful, beguiling one.

Right. That's it for the New Zealand tourist board. Hopefully I'll be looking at some free government-funded travel after this effort. Somehow, though, I doubt it.