Archive for the ‘Economic strategy’ Category

As the British energy minister Ed Miliband sets out the government’s strategy for combating climate change a good question to ask is: where is the leadership that’s really needed over this matter going to come from?

The government’s proposals involve cutting carbon emissions from electricity generation by 40 per cent by 2020. Since electricity only accounts for 35 per cent of our primary energy consumption that leaves most of the remaining 80 per cent of our emissions unaffected. The longer term goal is to reduce our total emissions for all purposes by 80 per cent, but that is only over four decades and the Intergovernmental Panel on Climate Change has said that this target is far too low and not soon enough to halt climate change.

The government is also allowing itself the safety valve of letting poor developing countries do some of the emissions reduction by carbon trading when implementation in the UK becomes difficult.

Well informed observers know that action at this leisurely pace is drastically inadequate, but where are the political leaders who will start telling voters, not that they must give up the good life, but that some significant changes will be needed? When Miliband cannot bring himself to tell people that they can still have their holidays in the sunny south but that will have to take the train and not fly and when the Prime Minister and Chancellor will not robustly confront the widespread popular delusion amongst voters – shown in a recent opinion poll – that what is needed now is cuts in public investment – the exact opposite of the truth – where does one go to find radical and imaginative political leadership?

The Green Party has the most comprehensive policies for the environmental crisis. It faces major hurdles getting elected precisely because what it offers involves radical change. That change, however, is of the kind that, it is now recognised across the political spectrum, is increasingly consonant with the urgency of climate change.

The Green Party has imaginative policies across all of public affairs and its lead candidates engage with balance and coherence in current debates. For all that, however, they fail to make the striking impact on the political stage that one might expect given the strong current relevance of their political platform.

It is quite possible that what lies behind this is a shortfall in outright political ambition: not the ambition to weald power in itself but the ambition to at least share in a measure of real political power in order to be able to achieve the radical change the Greens believe in. Strong ambition might involve, for instance, abandoning or weakening one strongly held position in order to focus attention upon the strengths of some other even more important policy.

Nuclear disarmament, for instance, could become a major electoral liability for the Greens as their wider electoral attractiveness increases. It is a fundamental conviction for many Greens that the UK’s nuclear weapons must be scrapped unilaterally with no delay. However, the Greens, even with popular policies on all fronts, are likely to deter many potential voters because of this issue.

The fact is, though, that it now looks as if modern civilisation is far more at risk from the rising threat of climate change than from the threat of nuclear war. In fact, it is now a matter of overwhelmingly critical importance. It is also central to the Green Party’s very raison d’etre. Why should not the Green Party, in order to prevent the nuclear issue from stalling its progress towards the centre of the stage, shift to a multi-lateral position? There would be uproar amongst its membership, but many more amongst the voters would be highly impressed.

Defective political ambition shows up, too, in Green Party spokes-persons and amongst their natural supporters in the manner in which they present the arguments to show, quite justifiably, how fundamentally optimistic and attractive their long-term vision is. An environmentally sustainable way of life would be a much better one, but the way to draw attention to this is to focus on concrete and specific and attractive facets of it. By contrast, the Greens will often make broad, abstract observations about their vision which don’t engage people’s imaginations, or even sound off-putting.

A major theme is localism, for instance. Life would be much better if we all worked much closer to home, we are told, and if we similarly enjoyed our leisure closer to home and bought things from nearby sources. The trouble with this approach is that it comes into conflict with so much of the pattern of people’s lives. Many people will be unable to see how they can realistically do the job they do without considerable travel, and many of course find that amusements located far from home and purchases from far away are highly attractive.

Instead, the focus should be upon such things as how greatly enhanced local public transport would make towns and other places more attractive to live in, and how high-speed rail journeys at reasonable prices would make long car journeys less appealing. People can readily grasp such clear advances without being obliged to take on a personal belief in the virtues of localism.

In fact, the focus upon the local is almost a distraction and irrelevance to the wider Green agenda. Climate change and the wider environmental threats are global issues, requiring co-operation between national governments. Voters can readily see that there is only  so much that they locally and personally can do about these things. They will expect those seeking election to focus on the big-scale things that governments alone can grapple with.

In the midst of the climate change crisis, when a strongly Green platform ought to be advancing to the forefront, the Greens can often be found emphasising that they are a party with policies on all the key issues of the day, that they are not a one issue band. This is undoubtedly true, but it should not prevent them from making it very clear that their programme for government would be focused first and foremost upon climate change.

The Greens seem almost to have conjured up this problem for themselves in their own imaginations. This is because they are reluctant to state openly what they are. The Green Party is a social democratic party in practice, its policies falling firmly within the tradition of the Labour party and similar parties of western Europe. It is for strong public services, a mixed economy, active macro-economic interventionism, reducing inequality and high taxation.

Critically, this established social democratic way of doing things is exactly what is needed to deal with the environmental crisis. Why don’t the Greens just start putting across the message that they are social democrats, whose natural supporters would be Labour and other centrist voters, and that they are determined to use government leadership and direction to engage in the battle to deal with the paramount issue of the day, climate change?

The Green Party not long ago achieved a major breakthrough by electing for the first time a single leader, thus responding to the reality that people can only be led to support the right policies if someone is clearly taking responsibility for doing the leading. And they have chosen the highly impressive, direct, clear-headed and experienced Caroline Lucas for the job. But a party is not just its leader, the Green Party’s message still needs to show more of the inspirational and the imagination that the situation calls for.

Labour MPs, though they know  they cannot win the next general election under Gordon Brown, now seem almost resigned to this, lacking the will to take the action that they could take to lessen the likelihood of an outright Tory victory and to ensure that much of the real achievement of this Labour government is preserved in the years ahead.

Their indecision is not warranted. Material for a strategy for a course of action to save Labour’s legacy has, in effect, been set out for them through recent events. Beyond that strategy, a variant on could be used if turns out not to be able to be fully implemented before the election. Here are the main components.

A recent opinion poll indicates that Labour could win with a slim majority if it had Alan Johnson as its leader. Johnson has said that he favours electoral reform for the House of Commons on the model for proportional representation (PR) proposed by the commission led by the late Roy Jenkins.

The Liberal Democrat leader Nick Clegg has also recently supported this form of PR. Clegg has proposed that PR could be set up before the end of this year as part of wider set of reforms.

Barry Shearman MP has pointed out that it would take simply a secret ballot of Labour MPs to bring about the vote of no-confidence in the Prime Minister that would leave the way clear for a leadership election. Experts on party rules have said that a new leader could be elected within a few weeks.

In any case, a vote by a majority of Labour MPs for a given candidate is on its own sufficient to choose a new Prime Minister, regardless of party rules – for there would be no point in Brown’s followers continuing to support him given that he would then no longer be in reality leader of Labour’s majority bloc in the House and therefore no longer command the support of the House.

By seizing upon the opportunity these circumstances offer, Labour could have a new Prime Minister in office within weeks, with a fair chance of both party and constitutional renewal.

A new leader would have to hold firmly to a determination not to hold a general election in the near future. This involves disarming the argument now being made that Labour could not legitimately change its leader a second time without that leader being endorsed by the voters. The fact is that, in Britain ’s unwritten constitution, there is no such rule. Moreover, the electorate in 2005 voted for a Labour government led by a cabinet with collective responsibility, one thing which is a firm rule of the constitution.

Postponing the general election till nearer the end of the maximum term will provide a new leader and their cabinet with space to unfold a programme which offers the sense of purposeful direction at present lacking, and also the opportunity for the basically well-judged measures already taken against the recession to show signs of yielding positive effects.

A wider constitutional reform agenda is certainly needed, but PR for the House of Commons is something that can done with relatively little delay. The detailed enquiry has already been carried out with the work of the Jenkins commission. Jenkins proposed a coherent, workable system. It employs the additional member system already used widely across continental Europe as well as in devolved authorities within Britain . It is a system that enables voters both to vote for a particular individual for their constituency and to elect minority parties that reflect most closely their policy preferences.

It is said that there would not be time for the Boundaries Commission to make the necessary changes in electoral divisions. This, however, where there’s a will there’s a way.  The government needs to insist upon a especially concerted effort by the Commission to ensure that it can do this quickly, if necessary backed up with additional resources.

All that is required is for Parliament to legislate for PR and then for a referendum to be held for it to get the voters’ endorsement. With Labour’s leadership supporting it and only the Tories of the other significant parties opposing PR it is very likely that this significant constitutional reform would be ratified in the referendum.

There is ample time to carry this out before the end of this year. It is crucial that PR should be in operation for the next general election, as this would prevent the Tories from winning an outright majority, just as it would for each other party. Coalition government would most likely follow. It is not inconceivable that a Labour- Lib Dem coalition could be formed, but a Tory government dependent upon non-Tory parties to remain in power would find it difficult to implement its full programme of cuts in public services and an economic policy focused away from reducing inequality.

However, there is a high potential for obstacles to arise to stymie this strategy. Fortunately,  there is a variant on it that would allow more time for it to surmount the obstacles. It is this:

The Liberal Democrats and Labour could form an electoral pact not to stand against each other in seats they respectively already hold. This would make it much harder for the Tories to win an outright majority.

This would be accompanied by the promise that, following the election, if they held a majority between them in parliament, the Lib Dems and Labour would co-operate to facilitate a full and open programme of constitutional reform, including first and foremost a balanced system of PR for the House of Commons. Referenda would be held on all key elements. Backing this up would be a firm promise that a further general election, using the new system, would be held within two years.

This plan could be legitimately presented to the electorate as a well structured process of reform directed towards building a healthier democracy.

The Liberal Democrats have long campaigned for PR. Labour has traditionally been opposed to it on the grounds that present system allows them their turn in office unhindered by the demands of other parties. Such a period is now coming to an end, however, with the risk that much of its work will be undone by a Tory government, just as it was under Thatcher and Major. Most of our continental partners with the least economic inequality have some form of PR. PR inevitably blunts initiatives from the outer ends of the political spectrum, both right and left. If Labour really wants to create the best conditions for the preservation of the advances in social solidarity that it has brought about then ensuring that the mandates of future governments depend upon PR looks like a major contribution to that end.

The current financial crisis raises fundamental questions about the alleged merits of globalization. Britain’s current plight illustrates this strikingly.

Britain’s long, much-praised boom was based upon our much-vaunted competitive advantage in service industries, above all in the financial sector. It did not matter, it was said, that we had small manufacturing sector and imported most everyday consumer goods, because our high-level expertise gave us the wealth to buy these things from economies that could produce them at much lower cost.

As a result of the financial crisis, major financial institutions have become insolvent or at risk of collapse and public funds have been required in order to stabilise the system. Britain’s premier service industry can no longer claim to be the robust front-runner of the economy it once did. Furthermore, the feted expertise and creative panache of investment bankers looks less convincing than it did. Much of the boom, it has emerged, was based upon high-risk investments and elaborate stock-value gambles whose yields eventually began extensively to fall short of expectations. A more prudent and old-fashioned investment model now looks cleverer than the proceedings of recent times.

This leaves Britain’s service sector economy with its leading sector badly weakened in economic power and prestige, with its strident demands for minimal regulation refuted by events and the widely –accepted need for pro-active government intervention.

This leaves the rest of Britain’s economy-leading service sector and the country’s wider prospects on the global stage planted on a fast-shifting sandbank. At the root of this lie the sharp contrasts between the nature of the jobs in the upper echelons of the service sector and that of the vast bulk of service jobs done by millions of British workers.

In most service jobs, the service provided by the worker involves merely facilitating use by the customer of a piece of advanced technology. The passenger pays for the temporary use of a railway, consisting of a large set of manufactured goods. The train drivers and station staff merely facilitate this. The customer phones up for information processed on a large corporate computer built from solid hardware and tangible software expertise, while the call-centre worker does little more than read the information out. When a shopper goes to buy the latest sophisticated gadget the shop assistant’s role is largely confined to processing the purchase. It is only at the very top end of the service industry, such as in the law, medicine or accountancy, that it is predominantly the skill of the individual service provider that one is paying for.

In the greater part of the service sector, the service worker contributes only a small proportion of the value of the service provided. It is above all the technology that they provide access to that holds the predominant value in the transaction.

The low level of value added by the rank and file service sector worker is reflected in the fact that the wages for the majority of British workers are punitively low in relation to the cost of living . In addition, the gap between these incomes and the well-off is very great.

These factors lend firm support to the view that an economy simply cannot generate enough wealth to ensure a robust level of income for most without making real concrete objects that offer substantial added value to the purchaser.

But what, exactly, should Britain manufacture? For one thing, what it most certainly and with urgency ought to be doing is embarking upon the large-scale making and installation of off-shore wind turbines. Britain has the greatest wind resources in Europe, and is surrounded by shallow seas well suited to this.

It is unlikely, however, that this would be enough to turn Britain into a high value-added economy. Moreover, China and the other export-led developing economies have already gone beyond simpler mass-produced items and before long are likely to rival British capabilities in renewables at prices which, because of our labour costs, we cannot match.

Many of our European partners have avoided going nearly so far down this road towards a labour force made up of a high-earning minority and a majority on stagnant earnings in low value-added occupations. They have done so by maintaining a robust manufacturing, exporting sector.

However, the inexorable logic of competition from the developing economies is that free trade will enable them to make increasing inroads into most spheres in western Europe that produce the high value-added real objects of manufacturing and software design. If they do so, these economies will become hollowed out as those sectors shrink, a process which Britain has followed furthest.

Eventually, it must become clear to policy makers that maintaining our wealth depends upon maintaining our capacity to make real objects that people need and want to buy. At that point, it is likely that there will emerge a mounting tide of calls for targeted tariffs to protect the most valuable industries. This would run counter to EU economic orthodoxy, but this is an orthodoxy that could well be overturned.

Housing is not like anything else in economics. It is governed by different economic rules than apply elsewhere. That, at least, is the conclusion to be drawn from what economic commentators and politicians say about it. With other things, it is good when they become less expensive. In housing, it is good when prices go up. But this makes less sense when you start to ask why it is so.

The latest high-tech multi-function gadget will be launched at a price that trend-setters alone will pay, but before long it or its imitators become more accessible, the price plunging both in face value and in real terms. Many commonplace items also become cheaper over time. Few disagree that this tendency is a good thing – except when it comes to housing.

The Halifax has reported that house prices have fallen by 15 per cent in the year to October.[1] Commentators nearly universally take this as major bad news for the economy. It is admitted in passing that first time buyers could benefit from this, but that said to be outweighed by wider considerations.

Of course, reasons why housing is an exception can readily be given. It is a piece of solid wealth standing against future uncertainties. Maintaining a mortgage enables people to stabilise the overall size of their outgoings for living accommodation. It is important to do this because, as a general trend over the medium and long term, the cost of homes keeps going up.

This is key to the economics of housing. Property values tend to rise, but the reason they tend to rise is that there is a scarcity of housing. Some 100,000 households are officially accepted by local authorities as homeless each year.[2]  In 2007 only 160,000 new homes were built in England, whereas the government’s target is for 223,000 per year.[3]

Stagnation rather then on-going price falls arises from the current finance shortage because sellers must escape negative equity caused by over-priced housing, in turn caused by the shortage of supply.

A vibrant housing market, reflected in rising prices, is also said to be good for the economy because it generates spending on furnishings, plumbers and carpenters. This would also take place, however, if house sales were buoyant due to an on-going fall in the real-terms price of housing, which would happen if there were not a scarcity of it.

It is, in fact, a completely unnecessary scarcity. If a modern advanced economy like Britain’s can readily supply the range of material goods that a modern way of life requires, from shelter and food to high-tech gadgets, then it is hard to see why it cannot supply enough of something so comparatively pre-modern and low-tech as a decent home to live in.

Key to getting out of the housing tangle is to build a lot more of it.

Acquiring a house or flat to live in, whether purchased or rented, will inevitably be a major economic transaction for most people. But there is no reason why it need be such a large transaction that it distorts the whole pattern of a person’s decisions about where they live and how they earn a living. If housing were not scarce it would be much cheaper and become more so as time went on. It would be just one among other major purchases that we need to make. It would be easier to change jobs or to embark upon a new form of work. Our wealth would then lie in the wealth of possibilities offered by more flexible patterns of life.

It is time to drop our illusory view of rising property prices as a talismanic marker of economic health. The government needs to start treating housing as something  which plays such a key strategic role in the economy that, while remaining largely in private hands, it must be overseen by government as a quasi-public service. The government should set about taking out for itself the loans necessary to commission an extensive new house-building programme. These funds it would before long start to recoup as rent or re-sales.

Such strategic government action to lessen the distorting effects of housing on the economy would operate as a fiscal stimulus against the unfolding recession by combating unemployment, in a context where Britain’s brick makers have laid off more than 1200 workers [4] in the current downturn and the major builder Taylor Wimpey has cut 1,900 jobs since the summer.[5]

Housing associations, using government assistance, are already taking the lead. They built 56 per cent more homes in the summer quarter this year than in summer 2007, while private sales collapsed.[6] The market alone cannot bring about affordable decent homes. The scale of the problem, in housing and for the wider economy, demands pro-active government intervention.

[1] http://www.guardian.co.uk/money/2008/nov/07/house-prices-fall
[2] http://www.housing.org.uk/default.aspx?tabid=496
[3] http://www.hbf.co.uk/Fact-Bank-8a256fe
[4] http://www.guardian.co.uk/business/2008/nov/13/construction-recession-brickmakers-hanson
[5] http://www.guardian.co.uk/business/2008/nov/12/recession-taylorwimpey
[6] http://www.guardian.co.uk/business/2008/aug/22/construction.housingmarket

We need nuclear power in order to help reduce our carbon emissions. That is the key motive given for the government’s agreement to the building of new nuclear capacity. This view, however, is based upon highly erroneous judgements about the power-producing capacity of nuclear power.

A recent announcement that it would be optimistic to expect to have on stream a new nuclear power plant by 2017 looks anything but impressive given the scale of the climate change challenges and the need for urgent action. A closer look at the background parameters of the nuclear industry reveals how fundamental the obstacles are.

It would in fact, because of the laws of physics and limited fuel reserves, be impossible for nuclear power to make more than a small contribution to Britain’s or the world’s energy needs. It is possible, however, for it to create immense quantities of long-lived dangerous waste and serious security problems, a big price for a small gain

The maximal potential yield of energy from nuclear power can only be accessed if both thermal and fast-breeder reactors are used. Uranium is mined then expended in thermal reactors which yield plutonium as a by-product. This plutonium can be used in fast-breeder reactors to produce energy while creating yet more plutonium from uranium.

A full exploitation of the potential of fast-breeder reactors would yield, according to generally accepted estimates, approximately 50 times as much energy as could be produced from using only thermal reactors to their full potential. Key to this, however, is the doubling time, the time it takes a fast-breeder reactor to produce as much plutonium as has been loaded into it as fuel. Because of the complexities, estimates for the doubling time are between 20 and 30 years.

The overall size of this timescale is dictated by nuclear physics. The first doubling of energy produced comes after about 30 years, the second after a further 30. Only in stages, over about 1500 years could the capacity of fast-breeder reactors be tapped.

This is why, given that action to combat climate change by reducing carbon emissions must take place now, fast-breeder reactors can play only a minor part in this. Any contribution from nuclear power to the energy strategy will have to be largely confined to the use of thermal reactors.

Consider, then, the potential contribution of the uranium that fuels thermal reactors.

Take a nuclear power station in Britain in the standard size range, one that produces one giga-watt of power and uses fissile uranium enriched to five times the concentration in natural uranium. As it operates it produces both heat and plutonium by nuclear fission of the uranium. The plutonium then contributes through further fission a large proportion – typically some 40 per cent – of the heat output. The energy in the electricity finally generated is at about on third the level of the heat output, due to wastage. The total amount of uranium oxide required includes both the fuel fed into the reactor and that from which the fissile uranium is extracted during enrichment.

The net effect is that the reactor will produce, for every tonne of fuel used, energy as electricity equivalent to the heat obtained from burning 3850 tonnes of oil. Multiplying this figure by the joint OECD and International Atomic Energy Agency estimate for the world’s uranium reserves, a total of 3.11 million tonnes, gives a figure for the amount of energy potentially produceable in thermal nuclear reactors. It comes to about 11.5 million tonnes of oil equivalent.

With this figure the scale of the realistic potential contribution of nuclear power to the world’s energy needs becomes clear. The world’s annual primary energy consumption stands at about 11,000 million tonnes of oil equivalent (m.t.o.e.), of which about 77 per cent comes from fossil fuels. This means that the energy available in the uranium reserves would be enough to replace our fossil fuel usage only for about a year and half.

In practice, it would be necessary, if nuclear power were to be used as much as possible to replace fossil fuels, to deploy it over a longer time-scale than this, since plants would have to be built and its use would only mesh with the electricity infrastructure that the move to renewables for all sectors including road transport will also require. Given that Britain uses some 2.6 per cent of the world’s fossil fuels it would seem fair that it should build a proportionate number of these new power plants. It would be about 32. Britain now has 20 plants, with 10 in operation

At present, nuclear supplies 18 per cent of Britain’s electricity from 10 power stations.  This amounts to just three per cent of energy consumption. On the generous assumption that 20 new plants could be put into operation, to triple power output, we could perhaps get about 10 per cent of our energy from nuclear power. Only by constructing a great many more power stations could Britain get the nuclear proportion significantly higher and even then the overwhelmingly greater contribution would still be coming from renewables and, for some time, from fossil fuels also.

It is often said that nuclear could provide flexibility of power supply and back-up for renewables, given that those are subject to fluctuations in wind and sunlight. However, the government (DTI) paper of May 2007 stresses that nuclear specifically, because of the operational complexities, is not suitable for this.

It is indisputable that nuclear, while causing serious long-lived environmental damage and major security difficulties, remains inescapably a comparatively feeble energy source.