Blog 2023 Malcolm Blair-Robinson

This remains top notch, but there is a warning. Sort out your deficit and borrowing mountain, or face a downgrade. S&P yesterday issued this warning, not to Spain , or Greece, Ireland or Portugal, but to the mighty United States of America. Markets plunged in fright. The world paused for breath. Wow.

Yet this is not straightforward. For years the US has spent more than it earns in tax and imported more than it exported. It seemed to work. But, of course, in the end it cannot. The end is now in sight as a possibility. Before, there was no end, just eternal borrowing. The main worry for S&P is lack of an agreed plan, because of a deadlocked government. A President, stalled by a Republican House, which is in turn trumped by a Democratic Senate. That worries markets and analysts.

At the heart of the matter is a President who believes you can borrow your way out of a recession and has been spending at levels which defy the imagination. The irony of the Obama administration is that it is internationally  enlightened and economically foolish. Beneath that there is a real problem: a fault line in the very structure of the United States itself. It has been argued over since the nation was founded. It caused the Civil War. This became about slavery and which was settled. But it was not about slavery, it was about Union. It was about whether Union was voluntary or not. Especially it was about which had authority over the other, the States over the union, or the Union over the states. This question was not settled, only silenced. It has simmered in the century and a half since. It has never gone away. Now it is very much back.

Now the trigger issue is not slavery. It is money. Not any money. Just the money spent by the Federal government. Politically the Parties have switched sides. The Republicans want to cut Federal spending and are for less government, the Democrats the opposite. This cannot be solved by a proclamation.  It is not an single issue. It is a whole concept. It is about whether the American dream can afford two levels of spending government. Or whether Americans are willing to pay the level of taxes necessary to pay for two levels of government. When spending was under control they were. Now it is out of control, old wounds and arguments are opening up, an old division is re-forming. A fiscal argument has already become a fundamental one. This has become a clash of what America is, what it is for.

This time the  will be no recourse to arms, at least by rival armies. It may not be possible to resolve this dual vision at all. It may have to be converted to productive tension. It will run through the 2012 Presidential election,which the Republicans hope to win. This looks more possible than it did. Because of that, the Republicans need to sort themselves a candidate with the stature and intellect to offer solutions to the biggest challenge to face the country domestically for a hundred and fifty years. Sarah Palin?  Dear me!

The markets meanwhile will try to rationalize, the rating agencies will warn. Here George Osborne can feel vindicated, but Ed Balls, Labour’s second disappointment for Shadow chancellor, needs to worry. The main plank of his economic policy, such as it is, has just been blown away, by the warning shot from S&P across the bows of the high spending government across the pond he so very much admires.

The general election in Finland has produced a mix of parties less favourable to EU bailouts in a parliament which, unusually, the new government will have to gain approval from for its support of the Portugese rescue. This has sent shivers round various capitals and quite a chill in some European Banks.

It is now ever more widely accepted that once a country gets into so much debt that it can no longer borrow on the markets, its economy is shot. By this stage the level of economic activity is already shrunk to the point were further cuts will do no good and a lot of harm. There is little realistic prospect that Greece, Ireland and Portugal will be able to develop the growth required to service and repay their bailouts. Moreover their populations will become worn down by falling living standards and will turn on their governments. Unless those governments go for default.

Why, then, are the IMF and EU going along with deals, which are for practical purposes dud? Because they know that in addition to every other stupidity they engaged in, the European banks lent far too much to these spendthrift economies and, if they default, more banks, many more, are bust and will need more rescuing.  The whole system, once again, would totter.

So the taxpayers have to bail out countries, who can then pay the banks back some of their rash loans, so that they can just survive the defaults when they come. In the interim, the people, mostly innocent victims of an economic model based on alchemy, have to suffer. There is something morally questionable about this whole thing. Economies driven by different values and arithmetic which adds up, are an absolute Rubicon which must never again be crossed. Reform of the banking system now assumes an even greater priority.

An Item Club report points up the fact that many British companies are cash rich. This is a very important statistic and shows how confused some politicians have become, with their demands for more, which means rash, lending by banks. Dividends are also on the rise. What this means is that outside the High Street, business has weathered the recession well and now has the power to lift the country out of the doldrums.

To make this even more attainable the world economy is expanding fast, outside the busted countries  caught in IMF/EU loans and penal cutbacks. We already know that manufacturing is expanding fast. What is now needed is a real blitz, whilst the pound is soft, on overseas markets. Home consumption must remain static as a consequence of the deficit reduction, but there is a vibrant world out there which holds the key to a firmer, more prosperous future.

What must not happen is for the weight of the state sector, once again, to grow. This will drag down the creation of real wealth, in favour of consumption through borrowing and asset inflation. We all know what happens then.

As the elections on May 5th approach, Labour is doing well in the opinion polls, considering the scale of its defeat last year, its guilt in the financial crisis and its lack of any new ideas. It was to be expected that the Coalition would become unpopular as the effects of the financial renewal took effect, so on the face of it, opinion poll averages which would give, in a general election, a clear majority of over eighty to Labour are not unexpected. Yet they are.

This is because the bulk of the voters support the cuts. They also are savvy to what went wrong and are busy putting their own personal budgets in order by paying down debt, controlling spending and, most important, not demanding wage settlements that they know neither their employers nor the country can afford. So what is wrong? It is this. The Government is beginning to look incompetent, muddle headed and obsessed by reforms few wanted and even fewer understand. There is also the question of judgement.

This list of anxieties grows. Libya is not working out and is daily costing the equivalent of all those extra nurses and midwives and police on the beat we need. The education reforms have been uneven and the approach to tuition fees and EMA a disaster. The health reforms are in confusion. There is disagreement over immigration. Osborne appears soft on the banks. The cost of living is going up fast. The Big Society is a load of waffle. Put bluntly this government looks inefficient and inexperienced.

Many posts ago this Blog suggested that it was a political mistake to carry out reforms while at the same time reducing the deficit. The lines between reforms and cuts become blurred and the value or necessity of each lost in the ensuing argument. More importantly the British do not like reform and change. This is why we still have an unwritten Constitution based on an autocratic monarchy, with some of its powers ceded to Parliament, which falls far short of an open, modern, democracy. It is why there is so much fluster over the NHS.  

It is also why the NO option is pulling ahead in the Referendum campaign. Voters are beginning to see it as another unnecessary reform. Another expensive muddle. What they really want is for the country to be run efficiently and with as little change as possible. Thus the Conservative party, cautious of unnecessary change was,  pre Thatcher, the natural party of government. Her radicalism was the call of the hour and hugely popular, but that hour has passed. People want to get on with their lives without upheaval. Moreover, not all her reforms worked out well.

It is thus likely, though as in any election not certain till the count is complete, that Labour will do well and both the Tories and Lib Dems will lose seats, especially the latter. Whatever the outcome it will reflect the natural process of the political swing. The winners will later fall and the losers will recover. The cycle will continue as in the past, into the future. 

Except for the Lib Dems. For them a NO vote would be an absolute calamity. Not only would it repudiate the core of what they stand for, it will make it difficult for them to survive as a potent political force. On current opinion polls they would be reduced to fewer than twenty seats in parliament. If the elctorate gets sick of reforms, it will also get sick of them.

Misrata may just be Gaddafi’s undoing. Up till now he has played his hand with considerable skill. Calm in Tripoli, from which mostly unhindered media correspondents report 24/7. Fighting up and down the road to Benghazi and for the apparently deserted towns in between. The attack on Sirte, Gaddafi’s birthplace, repulsed. Weathering vastly superior NATO firepower heroically. NATO split. America supporting but not fighting. Cameron and Sarkozy rebuffed by their allies. Russia, supported by China and Germany, beginning to voice the anxieties of what may now be the majority of the Security Council.

Then come TV pictures of children crying in an overcrowded Misrata hospital, riddled with shrapnel, followed by evidence of the use of cluster munitions. People recoil at injured children, their bodies shattered by indiscriminate shooting. This Blog is no exception. Just as Hitler saw a strategic prize in Stalingrad, where more than any other single battle Germany’s fate was sealed, so the Gaddafi family see the re-capture of Misrata, gateway to Tripoli, critical to their survival in power, even if in a divided Libya. With the rebels holding and not yielding, with control of the  port through which supplies pour ( maybe troops and armour later), the future looks less certain.

So the crack troops, the snipers, the mercenaries and the forbidden weapons are all thrown in, no holds barred, no mercy, no compassion. This may galvanise hesitant NATO members to release more planes.  In itself  this will make a difference, but not enough. More important, it re-energises the beleaguered Cameron and Sarkozy. But most important of all, it gives the hawks in the Pentagon the excuse to promote the only military move which will end the bloodshed. Multiple drone strikes on Gaddafi, his family and his cronies. The Security Council may not approve, NATO may wring its hands. If the drones hit their targets, none of that will matter.

In this most peculiar military operation, the three leaders of it, Obama, Cameron and Sarkozy have taken to writing a joint article for the newspapers to set out their stall. The goods on the stall are not quite those advertised nor are they the ones their stall is licenced to sell. Moreover, there are issues of quality control.

They declare that regime change is not their purpose, not least because they have no licence for it, yet the future of Libya is ‘unthinkable ‘ with Gaddafi in place. They may not like thinking it, but thus far it is the fact. Put in simple terms, these three leaders have had enough of Gaddafi and want him out. If they combined their military assets and used them, with a parachute division from each, the job could be done in a week. Instead they resort to gobbledy speak.

The NATO mission is fraught with internal disagreement and too few planes. Gates and Clinton have vetoed any further upgrade in the US effort from its current ‘supportive’ role. Obama is too weak politically to do anything about it. Both Cameron and Sarkozy have lukewarm support from their own electorates. At this rate there is a good and growing chance that Gaddafi will outlast all three of them. What a mess.

It is now clear that the problems so many feared are now taking effect. There was no exit strategy, so no clear military objective. Protecting civilians in a civil war is a concept incapable of impartial application. UNSCR 1973 was a political declaration, requiring military action, with a humanitarian objective.

A No Fly zone by itself was insufficient to protect against the Gaddaffi onslaught on the Rebels. So ‘any means necessary’ were permitted to be employed. This turned out to be targeting Gaddafi forces advancing out in the open. That has caused them to change tactics and has prevented them from advancing on the Rebel stronghold of Benghazi. It has not stopped them repelling the Rebels whenever they advance west, nor has it halted the siege of Misurata. There is a military stalemate on the ground. Attempts at a ceasefire stall at the refusal of the Gaddafi family to go.

Meanwhile America withdraws to a ‘supporting’ role. Other NATO members are reluctant to commit forces. Britain and France do not have enough hardware engaged to do the job on their own either because it does not exist, or because politically they fear a backlash at home or bits of both. There are only two ways out. Two Libyas or Gaddafi goes. Neither offers certainty that the civil war would end or would not erupt again after a short peace, but there are no other realistic outcomes.

The time for wishful thinking is well and truly over. There are now few options. One is for the UN  to pass a new resolution authorising NATO to up its game to regime change, which 1973 prohibits; this will require ground troops. That rules out both Britain and the US. It is politically impossible and would in any event not be passed in the Security Council.

Another option is for NATO step up the tempo of the current profile of activity. This may help the Rebels but it will not prove decisive. They do not have the military capacity to make new gains or if they do, to hold them. This is why there is no unanimity in NATO for this. More than likely there will be words that have a ring to them, whilst the military effort remains at half cock. The stalemate will then be confirmed three ways: between the fighting Libyans and NATO’s ability to halt the fighting in the Rebels’ favour.

That leaves only two options. To muddle on with a protracted military effort with no end in sight; that would be the goodnight kiss for both Cameron and Sarkozy. The other is to do a deal with the Gaddafi family and their key supporters, which will see them retired rich and comfortable and free from prosecution in the holiday idyl of their choice. This would be a political humiliation for Britain and France, more especially because from the very beginning it has been the only realistic option to save civilian lives. Things may then turn out better than hoped, maybe with the help of an Arab peacekeeping force, while Libya settles down. Remember Suez? Remember Eden?

There can be no doubt that the Department of Health is in serious political trouble over its reforms. How it got there is a mystery. The broad thrust of the new ideas are right. Detail can be adjusted. The Bill is half way through Parliament. Yet opposition grows, Milliband grows more strident, Lib Dems are in another turmoil, Downing Street is in a state of near panic and the nurses have lost confidence in the Secretary of State for Health.

This blog has lost confidence in the current NHS and in particular the Minister for Public Health in England, Anne Milton MP. Interviewed today, she was challenged on the fact that following the abolition of targets, A&E patients were being kept waiting for more than four hours in some cases. Her answer was that what was important was not the waiting time, but the quality of the treatment when you finally got it.

This is preposterous. What is the matter with the mentality of the people who are involved in the NHS? Nobody should wait in A&E for more than ten minutes and in 1980 nobody had to. How can it possibly be defensible for a health service to keep stricken patients waiting for four hours in an emergency? Would we wait four hours for a meal in a pub, or four hours for a routine train, or four hours for a play to start in a theatre, or four hours for an ambulance? No , because every other sort of service organises itself to deliver. But the NHS sees itself not as a service but a process and that process must take its course.

That is why it has to be reformed and if it is incapable of reform, shut down. It would be better to start again. Health Ministers must get a grip. Put more bluntly, this is a nettle that has to be grasped.

Neither of these two items of good news was expected. Both,  probably, will be reversed in the coming months before settling into a downward trend, so not too much should be read into these pieces of welcome data. Nevertheless they do show that things are not going in the direction of the borrow more now brigade of dangerous nutters, still active on the airwaves, but now less so. Osborne can take a touch of comfort with his coffee this morning.

Although the level of youth unemployment remains very worrying, it has not risen as predicted. There is a systemic element to this, related to the weaknesses in eduction, now being tackled. From the perspective of history we can now see that, perversely, it was not the abolition of the grammar schools which created real difficulty later. It was the abolition of the secondary moderns. Much derided and considered socially divisive, their contribution to the well being of society and the employment prospects of their students was a good deal undervalued. Not everyone needs to be a lawyer.

Which brings me to another statistic. The number of professional services firms in trouble has risen by 61% on a year ago. Bars and restaurants in trouble are up by 68%. There may be some truth in the cynical view that the latter is the product of the former. What is not in doubt is that both are a symptom of the re-balancing of the economy. However distressing for those involved, this is not only inevitable, but necessary.

Another straw in the wind of industrial re-generation is the restoration of car assembly at Longbridge, iconic birthplace of Austin cars and last surviving component of the home- grown British motor industry, until the final marque, MG, went bust in controversial circumstances six years ago. The wreckage was bought by China’s largest motor manufacturer and assembly of a British design, the MG6, from parts made in China, is now under way.

We need more of this. Let us hope the range of products will be expanded and include the latest clean technology. The industrial heartland of our country have much to offer. It is sad that our own investors and banks so binged themselves on property (75% of all bank lending) that they not only bust themselves and destroyed much of our industrial heritage, but also bust our country. From their fantasy world they told us that ‘invisibles’ and ‘services’ were sufficient to ensure prosperity. With lots of borrowing, of course. Well we have seen through all that. The invisible were just that, the services were no longer required and the borrowed money has now to be repaid. This is because none of those things are wealth creating, there are just activities which cost other people money, which dries up in tougher times.