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Infrastructure Investment: Privatisation

November 28, 2011 1 comment

George Osborne, ahead of Tuesday’s Autumn statement on the economy, has announced that there will be a £30bn investment in UK infrastructure. £25bn to come from pension funds and the China Investment Corporation and the remaining £5bn to be provided by central government funded by cuts elsewhere in the budget.

As a Keynesian, I favour a demand led approach but I also recognise that there is also a shortfall in the supply side, such as re-skilling of the unemployed. As Sam Bowman tweeted earlier: “Ha ha. £30 bn of infrastructure spending. Good one. That will help people to reskill for the future, won’t it? #jesuswept” I also recognise that the two are symbiotic, but that’s for another blogpost.

Investment in the UK infrastructure could be handled much better and it could also draw in more short-term capital for the Treasury. I’m referring to privatisation. Fixed Phone Lines, made of copper, need to be replaced by fibre optics to cope with increased demand on bandwidths due to a recent surge in people and products using and requiring broadband. BT currently has a de facto monopoly on this aspect of telecommunications infrastructure, with Virgin offering a cable based alternative in limited areas. The liberalisation that often comes with privatisation will provide more choice to the consumer, remove BT’s Universal Service Obligation as it has, in my opinion, failed in its obligation to provide access to advanced communications (broadband) across the nation, and create a more efficient broadband service thus aiding in growth.

Motorways could be sold off and made toll roads based on a Vignette. This would increase the immediate short-term access to capital that the UK government needs to reduce deficit and debt, remove its obligation for maintenance of the system and collect a revenue stream through a tax on the toll charges.

The attraction to these types of investment would be that the return of investment would be almost immediate and it would be of benefit to most of the citizens of this country. If the Chinese are looking to invest in the west, then the UK must be open to investment. With $410bn, that is a lot of capital to invest and the UK could do with all of it.

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Retort to the Telegraph

November 18, 2011 Leave a comment

On Friday, The Telegraph ‘reported’ on “Germany’s secret plans to derail a British referendum on the EU”. The plans aren’t that secret. The think tank, Open Europe, has provided an English translation of the document, entitled:  The future of the EU: Necessary integration policies for progress towards establishing a Stability union.

The document itself mainly concerns itself with changes to Article 126 of The Treaty of the Functioning of the European Union. Article_126 is largely about maintaining a resemblance of balanced budgets amongst member states.

The document proposes that paragraph 10 of Article 126 be deleted. Paragraph 10 states “The rights to bring actions provided for in Articles 258 and 259 may not be exercised within the framework of paragraphs 1 to 9 of this Article.”

Article 258 and Article 259 deal with legal proceedings being brought against a member state by either another member state or the Commission if a Treaty is deemed to have been broken.  This would allow direct intervention into the affairs of the offending member state by the Commission or, in this case, a European ‘Stability Commissioner’.

The crux of The Telegraph’s argument comes as a note at the bottom of the penultimate page.

“Limiting the effect of the treaty changes to the Eurozone states would make ratification easier, which would nevertheless be required by all EU member states (thereby less referenda could be necessary, which could also affect the UK).”

The proposals in the document are a change to a part of a treaty which only affects Eurozone members. However, as all treaties have to be ratified by members of the EU Britain would need to ratify the changes. The changes would only affect Britain if it were to join the Eurozone.

I recall the public being offered a referendum on Britain’s continued membership of the EU if there was a fundamental treaty change which affected its relationship with Europe. This proposed treaty change doesn’t affect Britain in the slightest.

Europe, China and the odd one out

October 27, 2011 Leave a comment

On Wednesday night the Eurozone summit convened and passed a motion agreeing to a €1 trillion European Financial Stability Facility (EFSF) top-up. It has already become obvious that this €1 trillion fund is not enough and negotiations will now start between the Eurozone, led by Nicolas Sarkozy, and China ahead of next weeks G20 meeting. It is expected that China will supply a further €1 trillion bringing the total fund to €2 trillion.

The summit also imposed certain conditions.  Banks will be limited in paying dividends and bonuses until they meet capital thresholds of 9%, or €106bn. This is the equivalent of another HSBC. No mean feat. Britain’s banks, having been forced by the Bank of England and the FSA to raise this amount will be spared the task.

Greece’s debt will be partially written off, reducing the debt burden from 180% GDP to 120% GDP. The next woe for the Eurozone is more than likely to come from Italy. Before the summit Berlusconi, the Italian Prime Minister, declared he would resign by the new year. A welcome announcement for pretty much everyone.  For months the Italian economy has been without leadership and this was openly declared by Steinmeier in the Bundestag on Wednesday.

The situation in the Eurozone, as is evident, is not contained to the Eurozone. Britain’s largest trading partner is the Eurozone. China holds €2.4 trillion in currency reserves. If the Euro collapsed China would be stuffed. As it is, China has had to resort to boosting domestic demand in anticipation that demand in EU27 will drop off, despite an increase of China to EU27 exports of 20% in 2010. China’s help, however, will not come from China’s desire not to lose any money. It is expected, and one would be surprised if they didn’t, that China will demand that Europe acknowledge China as a market economy and thus drop some of the trade barriers on Chinese products.

Britain, in the whole situation, is the odd one out. On Sunday, Sarkozy told Cameron “You are missing a good opportunity to shut up. If you wanted a say you should have joined the euro.” On Monday, Britain was the only Parliament to debate holding an in/out/renegotiate referendum on EU Membership. The Eurosceptics of Cameron’s Conservative Party threatened to tear his party apart. In the end, only 81 Conservative MPs (including the two tellers) rebelled against Cameron’s three line whip to vote in favour of the motion calling for the referendum.

Cameron has done well to isolate Britain from the European Community, and Germany in particular. The withdrawal of the Conservative Party from the European People’s Party in 2009 in favour of setting up a right-wing bloc in the European Parliament consisting of European fringe parties from the former Soviet bloc. Since becoming Prime Minister, Cameron has moved closer to France without German involvement. France and Germany are inseparable in Europe and to snub Dr. Merkel is an unwise decision.

In the Bundestag, on Wednesday, Kauder (CDU) said : we’re prepared to reach in our pockets, but expect solidarity from Britain & agreement on financial transaction tax. Was that solidarity given? No. Osborne stated that Britain would not give any money to the EFSF but did not rule out giving indirectly via the IMF. The same result will occur – Britain will give money to the Eurozone. The route that Britain has taken, however, will only serve to further isolate the island nation.

On Thursday morning, the Daily Express jumped on comments made by Merkel in the Bundestag on Wednesday:  “If the Euro falls, so does Europe.. No one should assume that another 50 years of peace in Europe are a given.” The Express took this for an implied declaration of war, thus cooling the frosty nature that Britain currently has with Germany. Britain is fast becoming the ‘odd ball’ of Europe.

Britain’s isolationism beside, will the current round of funding to the EFSF work? In the short-term it will. In the long-term it is unlikely. As a European Federalist, tinkering with the Euro will not save it. Fiscal and further political union will save it.

Soon to be Dead Ed

On Thursday Ed Miliband defied the wishes of his paymasters and called the strikes a mistake and further claimed that the Basic State Pension is enough for everyone to survive on and didn’t know what all the fuss was about. He said this as he hoisted the Hammer and Sickle flag above his £1.6 million home near Hampstead Heath.

The Unions were fuming. With the usually docile ATL issuing a fatwa on Miliband’s head – dead or alive (preferably dead). A Unison representative said they gave life to Miliband and they ‘can take it away’. Bob Crow, of RMT fame, offered to ‘crack some f***ing nuts!”

Those on the right issued as statement in solidarity with Miliband, stating that it is ‘better to be dead than red’ whilst they visibly backed away from Mr. Miliband in case the angry mob turned on them after dealing with Miliband. Have fear right wingers, they’re after you too.

Some or all of this report may have been made up.

Innovation and growth

March 28, 2011 3 comments

Innovation is a process of resource allocation. First, developmental, in that it commits resources to irreversible investments with uncertain returns. Second, organisational, in that it generates returns through the integration of human and physical resources. Third, strategic, in that it allocates resources to overcome market and technological conditions that other firms take as given.

Why is innovation important to growth?

Stagnant growth, little to no growth, is as a result of a) lack of consumption, and b) lack of innovation. While lack of consumption may be tackled through Keynesian demand-side economics – boosting the aggregate demand in an economy. This is artificial and cannot be sustained without innovation. For the reasons mentioned above, innovation is a greater driver of growth than demand-side economics.

What has innovation and growth got to do with today?

Well, if you hadn’t noticed it is a worry that Britain’s growth could stagnate. The coalition government also launched http://www.startupbritain.org – a website with useful links and information, together with corporate sponsorship, to help people to innovate and start up their own business with the drive of entrepreneurialism.

Great idea, but what’s the catch?

There isn’t one. However, many may feel that this is just another shallow gimmick by the government to get people on board with their programme. It may be, but it’s not a gimmick. It’s a step in the right direction for Britain to realise its entrepreneurial spirit. It’s something that should be applauded, embraced and built upon by all major parties, especially Labour if it is to seek re-election.