That Referendum

I shall start by saying that I believe strongly that the UK should and must remain a member of the European Union. We should, I think, because I am strongly anti-nationalist and so believe that integration suppresses nationalism, a force which, throughout history, has been almost invariably negative in its impact. (Its main positive impact has been when it has been a force against colonialism and exploitation). I think we must, because our economy is now structured to take advantage of the free market. If we left that market our economy would collapse. The threats, for example, being made by motor manufacturers that they would have to leave Britain if we left the EU are not empty. Of course they would leave. They would otherwise lose all the tariff advantages they have here. This is not blackmail, merely economic necessity. So, starting from this premise, I think that both pro and anti Europeans should welcome the possible referendum on the issue. I am pretty convinced that Britain would vote to stay in the EU. We need the vote to confirm it to shoot the UKIP fox and consign the party to history and it would stabilise British politics by taking away such a divisive issue, at least for a generation. The anti Europeans will welcome the vote, of course, because they expect to win in and that is totally understandable. The one great fear I, as a pro Europe person, have is that the referendum may be fought too much on the issue of human rights, i.e. on the mistaken belief that the contentious European Convention on Human Rights was created and is run by the EU. I suspect that more than three quarters of the general population believe that. The anti Europe press, UKIP and the 'OUT' campaign will do nothing to dispel this misapprehension. So I am going on ECHR watch from now on, spotting statements from various quarters which are deliberately designed to try to hook the ECHR onto the EU in people's minds and so win the referendum on a false premise. The 'STAY IN ' campaign should note this warning.

The minority factor

I think it axiomatic that there is little that is more dangerous in the world than a minority that doesn't care that it is a minority because it believes it is right. Arguably Tony Blair knew he was in a minority when he sent troops to Iraq but believed he was right. I rest my case. In recent times we see many examples. these include the republican movement in Northern Ireland, militant Zionists in the middle east, Islamic fundamentalists of various kinds and the Tea Party in the USA. It is useless trying to persuade these groups either that they are wrong, or that the democratic principle should prevail and they should accept that they are in the minority and desist. Perhaps sadly, the only way is negotiation. The alternative is perpetual war, part of the Orwellian dystopia.

Oligopoly

There has been a long gap since my last blog. I had a load of academic writing to complete which occupied my mind. That's done now, so here goes. Like most of us I was pretty horrified by the energy price increases, but even more alarmed by David Cameron's exhortation that more competition was the answer. I don't know whether he or George Osborne studied Economics at school or university (I think they both did)but they seem to have forgotten what they learned about oligopoly theory. Incidentally, Economics rightly gets a bad press for the unrealistic nature of many of its theories, but the oligopoly bit is intensely practical and substantially accurate in the real world. For those who don't know or remember, oligopoly means competition among the few. The energy generation and supply market is a classic oligopoly with its six dominant players. The theory says that oligopolies tend to behave in predictable common ways and have similar characteristics. Among these are : There are natural barriers to entry for new firms. This usually means that the required investment is so prohibitively high that smaller firms can't enter or complete. They do not enjoy the economies of scale of the existing players. Of course if such barriers are created by the existing players, they are artificial and invariably illegal. This would make the oligopoly in question a cartel. There is no suggestion the energy market is an illegal cartel. The main characteristic is called price 'stickiness' and a tendency for all the players to charge a similar price. There is a natural resistance to competing on price. This is for the following reason : If one firm drops its price below that of the others in an attempt to capture market share, it fears that all the others will follow suit so it will gain nothing. Furthermore, if such a price war occurs no one will gain (it becomes a zero-sum game) and everyone will lose profitability because prices end up lower. We consumers would love this to happen but it just doesn't. Think about it. Go to a number of electrical stores and compare the price of the same TV set or washing machine. They'll all be the same. By the way, a friend of mine, noticing this, used to go to such stores and ask each one to persuade him to buy a product from them rather than the shop over the road which was asking the same price. He often was offered a discount. Worth a try if you've got the bottle ! Don't try it with energy companies. Well, on second thoughts why not ? It often works with insurance companies. Normally firms engage in non-price competition. This means charging the same price but claiming their product is better quality, or their service is superior. Airlines typically do this. The problem with the energy market is that gas is gas and electricity is electricity no matter from whom we buy it. (note how petrol companies face a similar problem. They try to claim their petrol is better but we know its all the same). This means there is no competition at all, either on price, quality or service. What they have done is produce various different tariffs to give the appearance of competition. There has been one further problem with competition in the energy market. In competitive markets consumers are said to have 'perfect knowledge' of prices and products. They can also switch easily from one supplier to another. The supermarket market is like this. In the energy market consumers are confused by various price regimes and it is difficult to switch. Quite rightly the government forced the banks to make switching easy, but this has not happened in energy as yet. The energy market is not really a 'failed market' as many say it is. This is because oligopolies are expected to behave more or less like this. Oligopolies, in other words, are bound not to compete in the way other markets do. All this means that the idea that more competition is the answer will not wash. I'm afraid that even neo-liberals must accept that some state intervention is required.

Senior Labour politicians who need a good smack

I am becoming increasingly frustrated these days when I hear Labour politicians being interviewed, notably Ed Miliband and Liam Byrne. Perhaps I am just being a grumpy old man, but their constant refusal to commit themselves to any firm policies is really rather irksome and I want to give them a good smack on their leg. The excuse for non-commitment is usually, 'let's wait and see what the state of the economy is at the time of the next election'. This is ridiculous. We all know the economy will be in about the same state as it is now. Perhaps a little worse, perhaps a little better, but fundamentally the same. So we know what the 'country will be able to afford', don't we ? Worse still is their refusal to tell us what they actually believe in. For example the issue of whether benefits for senior citizen pensioners should be means tested or not, or even some of them abolished is a fundamental question. It should not be a matter of 'what the country can afford ?'it should be a matter of what do you believe is right. If you are a social democrat or left of centre politician you MUST have views on such issues. Why not tell us what they are and have done with it ? Similarly, Labour politicians spend large parts of any interview they face trying to tell us how badly we are being governed by the coalition. We can make our own minds up about that, thank you. Slagging off the government is not an acceptable excuse for refusing to tell us what you actually believe in, is it Ed ? Is it Liam ? Smack! This kind of pragmatic managerialism combined with obfuscation is an insult to the origins of the Labour Party. I know that class based politics is seriously out of date, but that is not a reason for them refusing to tell us what they believe in. We expect Conservatives to be pragmatic and cautious - it is part of their tradition, but it will not do for Labour. No wonder Boris and Nigel are doing well. At least they tell us what they think. What I would really like to hear, apart from the sound of a leg being smacked, on the radio is one of the increasingly frustrated interviewers say something like, ' Well I have asked you this question three times and you continually refuse to answer it and insist on merely criticising the government so I am going to terminate this interview. Thank you. Smack !

How coalitions should work

This morning's (March 18) news that a deal has been done over post Leveson press regulation is a welcome development as there was a danger that it would go the way of Lords reform where all agreed on the need for a change, but nothing happened because they could not agree on the precise nature of that reform. Whatever the merits of this agreement it seems to be a good model for how coalition government should work, as opposed to how it has been working. The Liberal Democrats, for once, put their money where their mouth is and stood their ground. The government, recognising that its policy was in a minority, accepted a compromise. In other words coalition may have been successful in achieving consensus, rather than simply highlighting the differences within government and demonstrating the weakness of the junior partner. It may have been an exercise in brinkmanship, but the truth is that brinkmanship often works, as has been seen recently in Scotland and in the USA.

Two requirements for a dynamic economy

I will not claim these two truisms , but can't remember where they came from, so I am merely recycling. It could be said that there are two requirements for an economy to work efficiently - and these go back to the Roman Empire and perhaps beyond. The first is an efficient and effective method of collecting and using taxes. This invloves reducing to a minimum inefficent collecting, evasion, avoidance and corruption. It also means that ALL taxes collected should be used for the public good, as identified by government. The second is the effective conversion of savings into investment. This, of course, involves the banks, equity and bond markets and other financial institutions. In the UK we are certainly making progress in the first requirement. It is the second that remains a huge problem. The recent poor lening figures from the banks illustrates the depth of this shortcoming. Governments need to make this a major priority and this emans they will have to face down the banks and call their bluff regarding competition and the threat to wihdrw their operations. They won't, so do it.

Beastly Eastleigh

Eastleigh is an unusual constituency. It ought to be a very safe Conservative seat but has been held by Liberal Democrats for many years, probably because of a very strong local organisation. It was therefore inevitable that the by election would also be unusual, and so it has proved. The most extraordinary event, even by Nick Clegg standards, was his assertion that the LIb Dems won a 'stunning' victory. He has to be upbeat to be sure, but one suspects he may believe his own rhetoric. It was a very poor result for the Lib Dems, who lost so many of their votes, though not as bad as it might have been given the circumstances. The fees issue probably does not play too much in a place like Eastleigh because the population is very well heeled. the fees issue will dog the Lib Dems in less well off places. The only stunning thing about it was that the Lib Dems were stunned that they won. It was bad for the Conservatives - obviously - and very bad for Labour, whose candidate, whom I like in general - fought a hopeless campaign. Labour should be gaining votes simply on two issues - the NHS and inequality. It is not and that is extraordinary to see. Miliband 's role was almost invisible. It also demonstrates the severe damage that Ukip can inflict on them. Even if their vote halves in a general election, it will be enough to deprive the Conservatives of many otherwise winnable seats. The electoral system is now turning back and biting its own master ! So all three parties will be gald to see the bacl of Eastleigh at least until 2015. They will all feel on safer ground in kinder places. Who was the real winner ? Probably Boris Johnson.