The Chancellor of the Exchequer has been allowing the electorate to believe the fiction of “ring-fencing”, consequently, we are beginning to think that the NHS and Education budgets are somehow ‘protected’. Unfortunately, it appears that in many respects Health and Education do not need ring-fencing – just propping-up because they are failing. They are not failing because of too little management but because of too much management, too many management accounts and the demands for too much management information. That particular “malaise” is not exclusive but belongs to all of the United Kingdom’s service industries – both private and public. Too much expensive admin.
The NHS and Education budgets wouldn’t need to be protected if the government stopped trying to centralise everything. It should simply empower those at the sharp-end to get on and do the job. For instance, let’s assume that Ed Balls’ department voted itself out of existence and the total budget was divided by the number of students and then divided pro-rata between all schools and Universities. That per capita amount would probably buy the best education on the planet. Now imagine doing the same with the NHS.
Why do the bureaucrats think they should control education and health from a Whitehall bunker? It does not work and the current over-populated administrative bedlam is a massive fiscal drag on the economy. These bureaucratic edifices are a massive cost and do nothing at all to increase the country’s wealth – on the contrary.
Wealth must be generated in order for an economy to work properly. That means people delivering something that someone else is prepared to pay for . Making stuff or delivering services just to ourselves in the UK won’t pay for our energy, food, imports, foreign holidays, foreign films, or even the dividends to foreigners and ex-pats who own most of the United Kingdom’s businesses.
One-pound’s-worth of imports from China needs to be paid for by £1 earned in the United Kingdom and NOT paid-for with a pound borrowed from China because then we owe China £2. It’s simple arithmetic and here’s a phrase that we don’t hear much nowadays – the Balance of Payments. Remember the phrase? It is the difference between what we buy and what we sell. We haven’t heard that phrase for so long that it appears “quaint”.
Nowadays we don’t have a Balance of Payments any more – just debt. We don’t even strive for a Balance of Payments.
Since the current economic crisis began, the one thing that stands out is the total lack of credibility amongst any of the so-called experts in predicting the way the economy and businesses are performing. The most often used phrases are “better-than-expected” and “confidence seems to be returning”. Many experts believe that the economy is “at last stabilising” – whatever that means. The weird thing is that none of the experts saw the current crisis looming. In spite of its size, the crisis appeared to hit out of the blue. Yet the experts still pontificate and take the money.
The budget deficit is the latest “bête-noir” and is interesting the politicians, economic experts and soothsayers. The budget deficit interests them far more than the economy. What is symptomatic of this government is that in order to try and deal with the budget deficit and to balance the books, all that they can focus-on are some peripheral and largely irrelevant tax adjustments plus some cuts in public spending. Whereas, the only REAL long-term way to tackle a deficit is to produce more and thus earn more.
Nevertheless, it is good of the government to admit that it has allowed public-sector spending to get out of hand – that is why hopefully, the public sector will be the first recipient of the long-overdue Treasury chainsaw.
The private sector has always been any country’s wealth-generator whereas the public sector has tradiaionally been the cost-generator.
For instance, the public sector’s current biggest bottomless money pit is the banking system. In fact, the banking system has never really been a wealth generator, except for the short time when it attracted foreign money into the country but judging by its current state, it did it without noticing the American sleight-of-hand which lost all those billions. So it is safe to say that the profits that the banks were booking for the last ten years were false. Therefore, it is also safe to say that the banking industry has never generated real wealth. The only thing that it has generated is largely illusory profit and because of their “smoke and mirrors” accounting practices, even that looks debatable.
However, even the foreign money that the banking industry and the City of London brought to the United Kingdom is slowly ebbing away and it is unlikely that the banks will ever re-achieve their former wealth-generating status.
Somewhere along the way, banks have lost or forgotten their primary purpose which is to attract savings and then to lend those savings to business and commerce in order to support the country’s economy and help it to grow. Its primary purpose is not to generate profits at any cost and at any risk – preferably by gambling on the Stock Exchange.
Real wealth is created by growing things, extracting things, or making things. If we want German and Japanese cars, we have to import them. Saudi oil – import it. American computers, Japanese games consoles, Finnish telephones, French wine – we import them. We are a net importer.
Other countries don’t give us their stuff for nothing so we have to pay with money or swap it for home-produced goods. The point is that we we don’t have much to barter-with. We don’t dig much coal, make much steel, build many cars, etc. etc. Our wimpish acceptance of all Euro-dictats means that we don’t catch many fish or grow many crops or animals.
Look in any Estate Agents window and see how many farm houses are for sale with tens of acres of empty fields. Check the southern counties and look at the number of old mills and barns that are now house conversions. It is the politicians who have destroyed our industries by their myopic rush towards the new age of the service industry.
Now, our “products” are computer services, financial services, etc and we were going to sell them to everyone. That was the original plan – we were going to have a service-based economy. Unfortunately, in spite of the fact that we decided to go down the “service route” and committed to it by expecting it to generate at least one-third of the country’s revenue, we even managed to screw that up. Today, instead of the service industries generating wealth here in the United Kingdom, we have farmed-off an unfeasibly-large proportion of them to India and China. We have begun the process of wealth-building , not for the United Kingdom but for the emerging eastern economies.
Financial Services was the dream service industry but after the battering that it has had in the last year-or-so, it does not look like a strong contender. All that foreign currency that we were going to attract, all that profit from international banking did arrive for a short time but unfortunately, even that has since been exposed as a sham. An illusion that even David Blaine would have been proud of.
So, as far as service industries are concerned, we are left with the NHS, the Army, the Civil Service and local authorities. We can’t swap local authority services for Hyundais or Audis. We can’t swap Social work for Chinese-made computers. We can however sell Education services to foreigners (which is why our universities are short of places for British students) and we can sell medical treatment to foreigners (which is why we get that kind of tourism) – but this doesn’t really benefit the rest of us to anywhere near the extent that we need.
When we weren’t looking, the world economic “balance of power” has shifted. We used to call China and Japan “The Far East” because there was a time when the rest of the world was referenced from the British Isles. It is now very likely that as the “eastern” economies prosper and we become no more than what we are – a small group of islands in the North Sea – we and the rest of Europe will become the Far West.
This is the reality check: There is very little that we have to offer the world that the world cannot find or buy cheaper and better elsewhere.
To demonstrate the adage that there is never anything new – do you know who said this: “If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
It was Thomas Jefferson.