Slowly but surely the world is coming round to our point of view.
David Cameron is beginning to realise that the problem with tax havens (and their attraction for those who use them) isn’t their low tax rates, it’s their secrecy laws. So the news that he’s managed to persuade the British Crown Dependencies to move towards transparency is very encouraging. Of course, it doesn’t go far enough. But it is a step in the right direction, even if it is one that is likely to have some unintended consequences for the economies of many small Caribbean states.
“Transparency” must not become just another word in soundbite bingo, but for all my interest in the matter, it isn’t the most important thing the G8 has to address.
Obviously, it is Syria.
And there is an opportunity to do something about it, because it is also the most important thing for Mr Rohani. Instead of bickering amongst themselves about which of the raggle-taggle Syrian opposition groups, most of whom are Salafist armed and influenced, we should arm, the West should join Russia and push hard for a serious peace conference. With Mr Rohani and Mr Erdogan at the table.
No preconditions. We must say, clearly, that it doesn’t matter who runs Syria, so long as there is peace. We may think, perfectly reasonably, that it can’t therefore be Mr Assad; but the Russians, equally reasonably think that it can therefore only be Assad. That is what the peace conference has to decide round the table in Geneva rather than over the corpses of yet more Syrians.
The Syria crisis is the most serious Middle-Eastern war yet. More serious than Iran-Iraq or Israel-Egypt. At every level it’s a dangerous conflict. On the ground, Saudi-funded salafists are pushing their noxious genocidal doctrines, the same doctrines that drive the bus-bombings in Quetta and the iconoclasms in Timbuktu. A seventh-century schism over a prophet’s inheritance is being exploited as two oil-rich totalitarian states vie with each other for influence over a diverse and global ummah. The West is being sucked in to supporting the bad guys yet again on the mistaken premise that my enemy’s enemy is my friend. And we all still need the money and oil that comes from Saudi, where the ascetic idealism of an eighteenth-century scholar has been turned into a vicious dogma that, unless confronted, will lead to fulfilment of the twisted prophecies misinterpreted by nutty Americans from the bizarre imagery in the Book of Revelation. Russia’s support for Assad is based partly on old loyalties, partly on a general objection to intervention in the internal affairs of any state, however vile – its own hands being dark-stained with the blood of its own Salafist insurgents, brutally suppressed in Chechnya.
The G8 is nowhere near as influential as it would like to think itself to be. But with Russia at the table, it can present a united front, not about the outcome but about the next step. Everyone has an interest in preventing the further spread of the conflict; and everyone bar a few lunatics funded by the Arab fringe also has an interest in curtailing the spread of Salafism. These two goals are much more important than who’s in charge in Syria.
I’m writing about this because I know something about it, which makes a change. I’ve actually been to Timbuktu, the city of 333 saints.
Mud buildings, narrow sandy streets, white sand specked red with coke cans and black with sunrotted binliners. Tuareg and Bela people, goats, camels and donkeys.
The imposition of strict salafist sharia seemed unlikely to survive, given the open, friendly and music-loving nature of the people I met. We were invited to a Tuareg wedding we happened to be passing, joining both the women and the men (who were in separate tents). We drank a lot of strong sweet black tea. Now I hear that the people of Timbuktu were cheering the liberating French as the French cheered the Americans and British in Paris in 1944.
I don’t think there’ll be a protracted Afghan style campaign. The Islamists, as they seem to be called in the press, won’t capture hearts and minds, even though Timbuktu’s people are all firmly Muslim. But something must be done to make the peace hold.
It’s a very difficult one. Until a decade or so ago, the Tuareg and Bela people had a traditional slave relationship. The Bela were by heredity slaves to the Tuareg, who could (but usually didn’t) buy and sell their Bela slaves as if they were camels. That’s been abolished by laws passed by the Bamako government, a thousand miles away, to the satisfaction of the (blacker) Bela people and the irritation of the Tuareg. When we went to our Tuareg wedding, it was a Bela woman who brought in the tea. Even before its politically-correct abolition, this wasn’t slavery like the plantation-slavery of the Americas. It was wrong, and an unequal relationship, but it was not that different to the other ethnic divisions of labour we’d seen elsewhere in Mali. One group lived by fishing the Niger, another by milking cows and selling milk; and the Tuareg traded across the Sahara, while the Bela served them. Northern Mali, the southern edge of the Sahara, is a dry, hostile place. Very little grows apart from cram-cram, a weed with sharp spiny seeds that stick to clothes and skin, and a few miles further north nothing does. The abolition of slavery changed the economics, not as dramatically as the climate change has done, nor so dramatically as the rise of Islamist violence, and it adversely affected the Tuareg. Across the Sahel, there is resentment and sometimes conflict between the lighter-skinned Northerners and the darker-skinned southerners. It is the same in Sudan, and as resources are tighter, resentment can turn to conflict.
We were in Timbuktu on our way to the Festival in the Desert, at Essakane, one of the poorest villages in Mali, chosen by the organisers (Bamako-based, but ethnically-Tuareg) not only because of its beautiful location (the festival being in a natural arena of silver dunes) but to help bring tourist income to the village. Leaving Timbuktu for Essakane (about 70km away, three hours in a 4×4 or a day and a night by camel, we passed the Peace Monument, built in 2000 at the end of the last civil war. Rusty AK47s were set in concrete, put beyond use. The Festival was part of a longer campaign to bring prosperity to the North, and to make the politicians in Bamako aware of how harsh the conditions were. We endured tedious opening speeches by the Minister of Culture, but we understood the reason; and we were pestered by Tuareg men who wanted to show (and to sell) us their beautiful silver jewellery and leather work. We succumbed early and for the next few days had to explain how we had bought all the jewellery we could afford. But one sale to a Western tourist would make a difference to a Tuareg family for a year. The difference between having enough to eat, and not having enough to eat. We were a major source of income.
The annual Festival in the Desert is no more. Kidnappings, by groups affiliated to AQIM, put a stop to it. No one was kidnapped at Essakane, but at other gatherings it did happen. It hasn’t been safe enough for westerners to travel to Timbuktu or to Essakane for several years.
Making the region economically viable will be very difficult. Many of the people we spoke to had hopes of rebuilding Timbuktu’s academic reputation, creating there a strong centre for moderate Islamic scholarship to rival the Salafist-dominated schools of Saudi Arabia. In the thirteenth century, the university of Timbuktu was the largest in the world. It grew rich from the caravan trade across the Sahara, trading gold from the mines to the south to the Muslim Empire. It was a centre of Sufi scholarship; the three hundred and thirty-three saints were Sufi mystics. In its decline, as the caravan route was eclipsed by the sea route and Christian Europe overcame the Muslim Empire, Timbuktu was wracked by a bloody civil war between rival schools of Sufi.
Sufism is considered shirk by the Salafist Muslims, who are strictly Sunni and advocate the killing of any Sufi or Shia. Al Quaeda, financed by Saudi money, promotes extreme Salafism and the associated iconoclasms. I don’t know how much of Timbuktu’s treasures will have survived; it is very unlikely that any of the Sufi shrines will remain, but the great mud mosque should still be there. Everyone is concerned about the city’s famous manuscripts. Many of these are mystic Sufi treatises, and would thus have been vulnerable to Salafist destruction. We also saw in the museum some astonishingly beautiful illuminated manuscripts of the Holy Qu’ran.
Timbuktu is a very special place, the hub of West Africa’s relationship with Islam. Through Timbuktu, Mali became Muslim. Its importance is more than historic. If we in the West want to stop the poisonous spread of extreme Salafism – which is active through Boko Haram in Northern Nigeria, we need to be prepared to support alternatives. That means supporting moderate, often Sufi Islam. Unfortunately, all the money behind Islam comes from Saudi Arabia, where Sunni Salafism dominates. There is no counterbalancing source of money to promote the tolerant versions of Islam with which most Muslims around the world are comfortable. While Wahabi Salafism remains the dominant force in the richest and most influential part of the Muslim world, Islam itself is under threat. Sufism was dominant in Afghanistan and Pakistan until the Saudis financed the Taleban, but Afghan society was always very conservative and was thus a much better fit with Salafism than the much more liberal African society. The Taleban found a popular home there; I do not think that AQIM will find a popular home in Timbuktu.
I suspect that this isn’t an original insight, but I think it is important.
It is triggered by reflecting on the fact that the 1% pay 26% of the tax that the government collects. The state relies on the 1% for over a quarter of its revenue. So it’s all very well the 99% moaning, but we depend on the 1% for our hospitals. The political right use this statistic as an argument against higher tax rates on the wealthy, implying that it shows that they already contribute “more than their fair share”, whatever that is. But I think this is missing the point, which is not that the top earners are over-taxed but that the very few get so much more money than everyone else that they end up paying much more tax in aggregate.
That is, these statistics are a symptom of a much deeper malaise - income inequality. My argument – which I rehearse here – is that this skewed income distribution is an economic problem, and not just a social one.
One of the failures of the 1980-2010 financial era (the era of deregulation and debt and neoliberal economics) is that income distribution in those nations, particularly the UK and the USA worsened. Worse meaning wider. A loaded word, “worse”.
True, we all got richer, but the rich got richer much faster than the poor got richer.
So, this is a problem, how?
First, it creates social pressures, class envy if you like. It seems unfair, even if (perhaps? I don’t know?) it isn’t. That’s a political position – those on the economic right tend to think that it isn’t a problem, those on the economic left think it is. I’m a soft lefty, so I think it matters, but I respect those who think that so long as we’re getting richer we should just get over the fact that others are getting richer still (and if or when expanding wealth gaps trigger social unrest, use force to suppress it…)
Let’s ignore the socio-political issues, and concentrate on the economics.
My contention is that excess income inequality suppresses growth . I think there is a point at which the degree of inequality helps to tip an economy into recession and that this has been a significant factor behind the recession of 2007-12. The process probably began more than three decades ago. 1978 doesn’t sit in my memory as a particularly good year (I graduated), but it’s the year when UK incomes were most evenly distributed. The growth in relative income of the industrial working class started by successful trade unions, and the corresponding decline of the relative wealth of the aristocracy reached its peak in 1978.
This is a fairly major claim – that the worst recession in modern times was caused by income inequality rather, than, say, irresponsible lending by financial institutions and irresponsible borrowing by governments, so before I get too stuck I’ll moderate my claim. Income inequality was a factor, one of the causes, not necessarily the only cause. I also think that it is a significant factor in making the recovery slower and longer than it need to be.
The mechanism for this is that the rich spend less of their money. Since in an unequal society they have most if it, the proportion of the national income spent on consumption falls as inequality grows. Income can be spent, or saved. On the whole, poorer people save less of their income because they need to spend more of it on essentials like rent and food. (The ratio of savings to income is known as the savings ratio; its complement is the consumption ratio, and they must, by definition, add up to one)
As the rich have a greater share of the national income, they save more so less of it gets spent.
Saving and consumption – the right balance
Economies need some investment; without investment, there will be no growth. People need to save some of their money. But equally, consumption needs to grow as fast as the economy grows; if it falls behind, you will get surplus capacity, and recession. Consumption is people spending their money on stuff, and doing so enough to generate a return on the the savings that they have invested in productive capacity to make the stuff they are buying. Productive capacity tends, naturally, to deteriorate – assets depreciate, technology becomes outdated. So to maintain a steady economy, we must invest in productive capacity at least as fast as it deteriorates. If investment exceeds the rate of decline of productive capacity, then capacity can grow – it might not, however, if investment goes to the wrong thing or to unproductive assets.
So, as the rich save more they invest more in the economy (since savings and investment are the same thing), leading to growth and job creation. That’s what’s supposed to happen. But it isn’t quite so simple. If consumption is lower than it should be, then productive assets won’t operate at full capacity which means that investment yields will fall. The extra capital available for investment drives down yields further, by pushing up the price of assets. Yield becomes a less important determinant of the price of an asset than the potential for capital gain, so capital is diverted from productive assets (such as factories making stuff that people want to buy) to non-productive assets (such as, in the extreme case, gold, but usually property). Low interest rates mean banks lend money to investors to put into inflating (but not necessarily productive) assets, creating an asset price bubble. When a particular bubble bursts, the banks that have lent against that class of asset record a loss, weakening their capital ratios and thus their ability to lend more; this has a knock-on effect on other aspects of their business, including in particular routine business lending. This is what has happened in a lot of the world in the last decade or so – the US, Ireland, Spain being acute examples, but it is also (and most scarily) happening in China now.
On the other hand, if more money is being spent on consumption, then factories making stuff are more profitable, yield is more important than capital gains and savings go into productive investment rather than to capital speculation.
So: skewed income distribution (the rich have most money) leads to more aggregate savings and less aggregate consumption; growth comes from capital appreciation; bubbles develop.
even income distribution (poorer people having more money) leads to more consumption and lower savings; growth comes from profitability; trade is sustainable.
But the amount being saved must be enough to provide the capital investment a growing economy needs – new plant and equipment, education and training, research and development, infrastructure; and consumption must be enough to earn a return on this investment greater than the returns available from capital appreciation.
There is an equilibrium point for optimal growth at which the population as a whole:
(a) saves enough to provide the economy with the capital it needs for sustainable growth; and
(b) consumes enough to generate the demand so that the capital earns a return.
(Note that savings and consumption must equal income just as the savings and consumption ratios (to income) must equal one).
However, if savings exceed the demand for capital then asset prices rise and bubbles develop. This happens when more of the national income goes to fewer people; they are more likely to save than to spend, so push up prices of assets. This draws savings away from productive investment (which generates its return by satisfying the demand for consumption) towards unproductive investments (like property) which generate their return by inflating in price.
On the other hand, if consumption is excessive then there is insufficient aggregate investment in productive assets, so production is limited, prices rise and inflation follows.
The result of this analysis is that there are two sorts of inflation, both pernicious, but pernicious in different ways. Asset price inflation – such as you get with stock market and property booms – depresses interest rates and leads to bubbles and crashes; consumed goods inflation leads to higher interest rates. The former is likely when you have excess savings which arise from a skewed income distribution; the latter when you have an income distribution that is too flat.
This last conclusion is somewhat surprising, but perhaps should be expected. A too-flat income distribution is just as undesirable as a badly-skewed one. (It is also undesirable because there would be no incentive to work)
It now being a very long time since I did any significant mathematics, I am not sure I quite have the head on me to put into concise symbolic terms the points I have tried to express above and to generate the necessary simultaneous inequalities that could specify the ideal income distribution for an economy; however I am damn sure we are far too unequal now.
When it comes to coffee, Starbucks is the last place I think of going. The fact is its coffee is almost as nasty as Costa’s (“Saving the world from mediocre coffee by drowning it in shit coffee”).
Apparently, though, people are starting to boycott Starbucks because it has been named and shamed as a non-payer of UK corporation tax, and it’s now going to go to HMRC to see if it can pay a bit more. Just enough more to stop the boycott, mind. Because if Starbucks were to pay a penny more tax than it had to, it would be in breach of company law. Its duty is to act in the best interests of its shareholders. If sales fall because of the boycott, it’s doing the right thing by them by discussing matters with HMRC. Anything to head off the boycott.
Margaret Hodge, chair of the Parliamentary Committee which grilled these companies about their tax affairs, was guilty of political grandstanding. OK, that’s her job, just as much as avoiding tax is the job of the directors of Amazon, Starbucks et al. But the press needs to be cleverer than this and point out the inconsistency in her position. What is wrong is the system that allows companies to get away with paying so little tax – making, for international corporations, corporation tax largely voluntary.
Corporation tax is a tax on company profits. Profits are not, despite immediate appearances, objectively determined. Profits as calculated for corporation tax aren’t the same as profits as calculated for reporting to shareholders; evidently, because Starbucks has (for tax purposes) been operating at a loss in the UK, but (for reporting to shareholders) been operating at a fat profit. This subjective assessment is ripe territory for expensive tax advisers, and we are now seeing the opening of an arms race as Osborne announces more resources for HMRC inspectors to sort the mess out. Will it work? I doubt it.
Tax, to be fair, must be assessed against objective criteria, and profit is subjective. It’s the wrong base on which to tax companies. I’ve written elsewhere at some length why I think that corporation tax should be abolished (since it is, effectively, a tax on pensioners rather than corporate fat cats); but if you are going to tax corporations, tax them on their cash flow. Cash flow, unlike profits, is objective.
This is somewhat off-topic, but it is important. Migration Watch UK, chaired by retired diplomat Sir Andrew Green, a self-styled independent think-tank but more accurately a single-issue pressure group, has been vocal in bringing to public attention what it perceives to be the dangers of “mass immigration”. It has been very successful in getting air-time on the Today Progamme, still the most influential current affairs publication in any medium in the UK; and its views are seldom challenged.
This raises several issues, not least the question of the BBC’s famed impartiality, which is required by its Charter.
Sir Andrew presents the “problem” of immigration almost entirely negatively. The BBC seldom has anyone up against him, and when it does it tends to choose well-informed academics who give a neutral, balanced case in reply. No one, it seems, is willing to be as vocal about the benefits of mass immigration as Sir Andrew is about the downsides. Or rather, the BBC seems unable to find them, because such people do exist.
Immigration has always been immensely beneficial to this country. That’s my opinion, and it’s at least as valid as Sir Andrew’s contrary one. In fact, I challenge Sir Andrew to explain why he thinks immigration is bad. Does he think that immigration is always bad – in which case, perhaps he’d feel confident explaining this to the large part of the population with immigrant heritage – or does he think that past immgration is good, or ok, but future immigration is bad? And why, in that case, choose now as the cutoff point?
No one can deny that the waves of immigration over the last sixty or so years and longer have changed the face of the country; and future immigration will continue to change it. The question is whether those changes have been positive, and it does not take much reflection to conclude that on balance, they have. Our country is a far better one than it was sixty-four years ago, on the 22nd June 1948 when the Empire Windrush docked at Tilbury with 493 Jamaicans on board. Those people, and the people who came after them from the Caribbean, India, Pakistan, Sri Lanka, Hong Kong and all over the world changed Britain and British culture, mostly for the better. Immigration does that. New ideas and new blood and the energy that migrants bring to an economy shake up society. Our cuisine, for example, was shaken out of its bland mediocrity at least as much by the Bengali and Hong Kong migrants who set up restaurants and take-aways across the country as it was by the middle-class cookery writers like Elizabeth David and Marguerite Patten. The Ugandan Asians, expelled by Idi Amin and welcomed by Edward Heath’s Conservative government in 1972, transformed our retail sector – amongst others.
Every time there have been waves of “mass immigration” there have been naysayers like Sir Andrew. Enoch Powell predicted “rivers of blood”. They never flowed. Opposition to the Heath government’s principled position over the Ugandan Asians was most vocal from his own back benches; had Sir Andrew been active then, he would no doubt have been leading that opposition.There was opposition, too, to the arrival of Jewish migrants from Eastern Europe fleeing pogroms and worse in the first half of the last century. Their heirs are now amongst the pillars of society, and society is richer for it.
There have been difficulties; it would be surprising if there had not been. The disturbances in northern England in 2001 were unfortunate, but were due as much to the particularly segregated nature of the populations in those former mill towns as to migration itself.
I live in Brixton, and I am proud to run my business in Brixton Market. I am proud because Brixton Market, with all its different traders from the Caribbean, Africa, South America, Asia, Europe selling to Brixtonians, Londoners and visitors, represents the best of Brixton, a district that has been made and transformed by different waves of migrants for more than a century, and Brixton represents the best of London, the greatest city on the planet because of its wonderfully diverse, welcoming and beautiful people – and it’s that, above all, that makes me proud to be British.
Assange’s vainglorious posturing is getting more and more tiresome. I am deeply disappointed that Ecuador decided to give him asylum, but it does serve his purpose.
It long ago ceased to have anything to do with transparency, and is now all about promoting Mr Assange.
I have no doubt that when in Sweden he used his notoriety to masculine effect. The charges he faces are, so I am led to believe, based on a Swedish law that makes having unprotected sex prima facie evidence of rape. Whether it was rape is something for the courts to decide (and it seems that only the question of consent is at issue, he admits to the contact. Nevertheless, if he did have unprotected consensual sex outside a committed relationship he is even more of an arrogant prick, just not (quite) a rapist.
But this is the point. The world needs something like Wikileaks, a secure channel to publish sensitive information that the powerful want to keep secret. It does not need Wikileaks as a vehicle for Mr Assange’s ego trips.
Mr Milliband, perhaps?
The time has come for us finally to drain the swamp that is the City of London and rebuild a new, prosperous, ethical and competitive financial sector that efficiently channels savings into enterprise, to build a productive economy that will support an ageing population in an uncertain world.
We are all to blame
All parties must share the blame for today’s mess; Labour no less than Conservative – Labour was in power when it was already apparent that things were not going right. We should have seen the warning signs – Equitable Life, and one mis-selling scandal after another. People were saying that things weren’t right back then, but too many of us swallowed the line that an unregulated system was always going to do best – and, to be honest, we enjoyed the false prosperity it created and the tax revenues it produced. It is cheap to reduce this to party political points; while they were in opposition, the Conservatives were hardly calling for tougher City regulation. But with hindsight, it is clear that mistakes began to be made in the 1970s and 1980s, when we started dismantling outdated defences erected in the 1920s and 30s, after a previous bout of sociopathic behaviour by the financial services industry. We didn’t build replacement ones that were anything like strong enough, we allowed inherently conflicted institutions to grow, giant financial conglomerates doing everything under one roof, and we relied far too much on regulation. Yes, you heard me right: too much regulation.
The limits of regulation
Regulation itself isn’t the answer. Regulation generates friction round the regulated zone. It needs regulators; regulators must be funded; and since there’s always more money on the dark side, regulators move. This is a serious problem in the Civil Service, particularly at the Treasury. The Treasury recruits the best and brightest graduates, but few stay more than a few years before leaving for much better paid positions in the private sector. There’s a problem of continuity, and the quality of institutional knowledge in the Treasury, a resource the politicians running the place depend on, leaves much to be desired. The FSA and the Bank of England share this problem – it doesn’t matter how you structure the departments involved, public-sector regulators can’t afford to retain the best and the brightest people needed to make regulation effective. Regulation becomes an arms race between the regulators and the regulated. We need an environment in which market forces, not regulators, do the regulation. But market forces have failed, because the environment is wrong. Mainly, they’ve failed because we let banks become too big to fail. Market forces depend on the real fear of failure – “moral hazard” is the technical term: markets work when failures fail, not when they’re bailed out. Most of our banks are now too big to fail. Lehman Brothers, a big investment bank with no retail division, was to big to fail without hurting everyone else. The world let Lehman Brothers fail and we are still feeling the after-effects, so the others, we bailed out.
We let them all get too big to fail. A financial sector with more smaller players would be much more resilient; failure would be absorbed. And because we are so dependent on the financial sector, failure of even a moderately-sized player can seriously damage the economy.
So I am going to make a few suggestions for themes which should underpin a rew regime for the City.
- First, transparency. No secret deals. Transparency is the simplest and easiest way to rebuild trust. And technology means we can be much more transparent than ever before. LIBOR, for example, shouldn’t be determined by banks’ – falsifiable – submissions, but directly from the actual loans made between banks, the details of which should all be published in near real-time. If the details of a transaction are published, it should be considered prima facie legitimate; if they are concealed, unpublished, withheld, we should assume that it is an illegitimate, unlawful or unethical one. A transaction to which either party is a body incorporated in a secret jurisdiction must be considered a secret one.
- Secondly, separation of specialisms. Not just a Vickers-plus separation of retail and investment banking, but separating the different functions of investment banking so that there can be no conflicts within a single firm. There is an inherent conflict if the bank which helps you raise money through a share issue is also trading those shares and investing its other clients’ money in them. Stockbrokers should be stockbrokers, banks banks, and fund managers fund managers. This has the additional advantage that it leads to my third suggested theme:
- Risk Redistribution. Smaller, specialist firms competing in their own sophisticated markets do not present a systemic risk to the system. If one fails, it doesn’t bring down the rest of the house. None of them is too big to fail, and we should expect failures from time to time. Occasional failure is one of the features of a successful market.
- Fourthly, synchronous rewards: we need to ensure that the rewards earned by the City’s people reflect those earned by their clients, proportionate in both value and risk, and maturing in the same time-frame. Sales commissions on endowments and many insurance products are an example of a badly asynchronous reward, and we should not be surprised that there have been numerous examples of mis-selling.
- and finally, localised liability. The City serves an important purpose and speculation in all sorts of financial instrument – from simple equities to complex derivatives – keeps markets liquid and provides a useful way for enterprises to hedge against unforeseen risks. But that risk should stay local; it shouldn’t be shared out, lost and absorbed by ordinary people’s savings. The people who gain most out of these markets should be those who play with their own money, not with other peoples’.
This a recipe for a very different City. It would be a much more sober place, but still an exciting one, where fortunes will still be made and lost, and mostly made, but mostly made over a lifetime rather than an afternoon. It will be an entrepreneurial City, one where it’s easy to set up in business, where competition is fierce and as a result, profits mostly low. Where the big bucks are made by hard work, not BSDs. Where professional pride in a job well done for your client outweighs pride in the size of your bonus. Where a few clear principles regulate everything, rather than books of complex rules. An outward looking City, where money is raised for enterprises and managed for savers across the country and across the world. A City that serves the nation, as it has done so well in the past.
A City we can be proud of.
I understand entirely why the parties to negotiated settlements wish to impose gagging clauses, and super-gagging clauses. What I don’t understand is why they are lawful. Although I have said that “nothing to hide, nothing to fear” is the excuse of tyrants, that’s in connection with individual privacy.
Corporations should have no right to privacy, and although they can expect their commercial interests to be respected (for example, under today’s patent law, it would be acceptable to require a gaggee not to disclose the details of an invention for which the patent application had yet to be filed), I don’t see why the merely political should be subject to gagging, Indeed, to do so has a stifling effect on free speech. If corporations have nothing to hide, then they have nothing to fear from a law that makes gagging clauses unenforceable.
Because if a gagging clause is imposed, we will always ask, what are they trying to hide?
Updated Valentine’s Day 2013.
Gagging clauses are in the news again as Gary Walker, former CE of United Lincs Healthcare trust, has breached the gagging clause included as part of his unfair dismissal settlement. A bold move, and he’s already had a nastygram from lawyers acting for his former employers, the Strategic Health Authority. There is clearly no love lost between him and the former chair of that authority, whom he named on the Today Programme, and who is now a Dame and in a senior position at the Department of Health.
Steven Dorrell MP, the chair of the Commons Health Select Committee, said on the programme that there was a balance between the public’s right to know and individual patient confidentiality, and he also talked about the need for new criminal sanctions. Both points are wrong. Individual patient confidentiality is absolute, and you don’t need a gagging clause to impose it. If Gary Walker were to reveal any information about individual patients, the full force of the law and of public opinion should come down against him. But his disagreements with his then boss about priorities of emergency over non-emergency care are matters of public interest and should not be gaggable. It’s not difficult for Parliament to draft a law that simply makes these clauses unenforceable. Even I could have a go in about five minutes:
(1) In any contract, a term purporting to impose any obligation of confidentiality on either or both of the parties shall be void;
(2) All other terms in the contract shall remain in full force and effect, regardless of any clause to the contrary;
(3) Subsection 1 shall not apply to obligations of confidentiality in connection with:
(a) information of a personal nature pertaining to individuals;
(b)Trade secrets and other information of a proprietary technical nature;
If such a law had existed at the time, it’s quite likely that Gary Walker would have been offered somewhat less than the £0.5m he is reported to have got, because – if the story is correct – the SHA thought it worth paying him that amount to shut up. Public money saved all round, in over-the top payoffs, so what’s not to like?
The criminal case argument made by Dorrell is a massive red herring. Who is the criminal here? Could it be proved beyond reasonable doubt? Just make the gagging clause unenforceable.
The casual way in which these Barclays traders rigged the market is clearly the tip of the iceberg. Corruption and a disregard for the client is obviously endemic in financial services.
The root of these problems lies in the 1980s deregulation of the City. The merger of commercial and investment banks is only one of the mistakes made then; as damaging was the merger of stockbrokers with investment banks. Chinese walls are not just porous, they’ve been torn down; but for the leakage to be effective, the information has to be contained within the mothership.
We need lots of separate institutions, partnerships rather than plcs, for each speciality, so none is too big to fail, and each will be required to be totally transparent in their dealings.
Right, let’s get some things clear.
The NHS, for all its failings, is consistently shown to be the developed world’s most cost-effective healthcare system.
That does not mean that it cannot be improved. I personally now have a whole list of ways in which the A&E and plastic surgery departments of St Thomas’ Hospital could be much better, as I am sure do most of its patients. I will, sooner or later (probably when I’m back to typing with two hands), rehearse these to you and to them; but the changes I suggest should be tested before they are introduced and considered from a much wider perspective than mine alone.
None of my suggestions involves contracting out services (naturally, they’re mostly about transparency) but were anyone to make a suggestion that did, let it be openly tested against proper evidence. I’ve got nothing against health privatisation, if it turns out to produce better, cheaper, fairer results for all . That is, it improves the quality of health outcomes in the UK regardless of the patient’s means. Reducing the cost of any intervention, without affecting the quality of the outcome is the same thing. The trouble is, there is no evidence that it can do so. Its champions must show that it does, not just claim that it does in theory; and the way to do so is to conduct trials and to look at the historical and international comparators. Evidence, Evidence, Evidence.