Priorities

I have tried a number of times to compose a response to the Council of Ministers' proposed priorities 2015-18 document. It has been challenging not least because the document makes absolutely no sense to me. Which is a great pity as I broadly agree at least two of the four priorities ought to be objectives for the life of this elected States.  So instead of a structured posting I'm going to post some observations and see if someone elese can make a coherent formulation of either the Ministers' priorities or my notes.

I'll start at the beginning – the contents page. Now you know things are bad when even the contents page causes a problem. We have three sections presented - setting the scene, then developing the priorities, followed by creating a sustainable future. The first two seem sensible, but the third does not flow or follow. The largest part of the section has nothing to say about the future, it spends much of its wording giving justification for the selection of the four priorities. But crucially a sustainable future is NOT one of those priorities. Why would you have a major heading of a section with a title that is most definitely not what the document is not about? Either it is grossly incompetent or there is a will to deceive the casual reader of the real nature of the contents.

It is very confusing to have page numbers the header of part of the document, but not all of it. It makes referencing difficult as the on screen display does not match the layout version.

On to the Introduction. Nothing much there about the content, but why include a whole blank page with just the word Introduction on it? A complete waste for anyone who had decided to print the document.  

Setting the scene. Now things get 'interesting' . The report starts with a quote from the OECD wellbeing report. What is said is true, but it is simultaneously a half truth. The cherry picked bits are all the positives.

Notice the areas where we scored particularly badly both relatively and absolutely - civic engagement and environmental quality - do not figure in the Council of Minsiters' priorities.

At the foot of the page we have a statement “Over the next 20 years the number of people over-65 will double and there will be nearly three times as many people over-85. Fewer people working, fewer people paying tax, more demands on our health and pension systems. This is unsustainable.” The first sentence is probably true, but I note there are reasons to think life expectancy here is declining see ¹ .The second sentence is almost certainly false. People do not stop being tax payers at 65 or 85 years old. Since the introduction of GST it is almost certain that everyone resident in the Island pays some tax - one of the great 'benefits' claimed by the proponents when it was introduced.

The details on page 8 are inconsistent. On the third paragraph it reads To enable us to meet this financial challenge, we need to drive productivity-led economic growth". By the 7^th paragraph this imperative had transformed into "Economic growth and public sector productivity are our preferred options to meet the financial challenges we face”. We do not need to do something if it is a specific form of an option. There seems to be some very woolly thinking, or is it simply mantra regurgitation occurring here?

Health and wellbeing is covered on page 9 (or is it 8?), and there are some laudable aims here. But again we have a sentence that causes great concern. At the end of paragraph 4 we read "Declining health leads to social exclusion, loss of earnings, and adverse consequences in the wider economy." But in the section quoted here two paragraphs above we were led to think that it was the ageing population that was creating a health demand problem. Retired people do not in general lose earnings being ill because in general they are not working and so not earning in the first place. Again there seems to be some fundamental inconsistency in the minds of the ministers here.

Page 12 is the education section. Saying I have misgivings about the thrust of this section would be an understatement. More than once this section suggests that the purpose of education is to mould children and youths into supporting the economy. It is quite disgraceful to write "The fact that some of our children are not fulfilling their true potential is a waste of Jersey’s

most precious resource – our people - and an economic inefficiency we can ill afford” This notion that people exist and are valued only by the extent they make an economic contribution is outrageous. I don't believe I have seen such an unspeakably illiberal suggestion since a former Home Affairs Minister said he wanted more political control of the police force.

There is a practical problem with the proposal "Jersey’s education system is aligned to, and supports, the Island’s economic needs” It takes a decade or more to educate and train someone . We have little idea what will be the economic need in ten years time. Several members of the Council of Ministers were in the States a decade ago . How many of them then were arguing bringing propositions etc for IT education to train a generation for today's digital economy?

A remark must be made about the quote in this section: "Education is the most powerful weapon you can use to change the world". I think this is quite inappropriate to use here. Madiba first gave that quote on his visit to Boston in 1990 , just months after his release from prison. He was not talking about education his people for taking jobs in the white controlled economy of the day – he had supported campaign for divestment from South Africa! He was talking about the sort of change of world that the OECD has us scored as 0 in the the wellbeing report cited above.

Economic growth is the final priority, addressed on page 13. I cannot recall a time when the States of Jersey didn't have economic growth as a priority. It seems we just cannot get enough of it. This time round we have a new twist. This is not ordinary economic growth this is Council of Ministers' sustainable productivity-led economic growth.

In theory one can achieve a long running period of economic growth from efficiency improvements without any increase in material consumption or pollution or population growth. It is extraordinarily hard however as countless governments around the world have discovered when they have tried it. There is a rapidly diminishing return on the effort involved. It would require a society of less work and increasing low energy, low consumption leisure activity. That goes against several generations of belief that increased material and financial acquisition is the way to a better future. And therein lies the problem.

If the policy succeeds we have more people on average with more disposable income, and more tax revenue for the States presumably, but equally the potential to consume even more than now. That's not a good outcome in the face of resource limits, climate change and the ecology of the Island. But what if educated, well trained people are not motivated to have more money. Also there is nothing to suggest we would tackle the increasing inequality in income and wealth that would be expected produce. Then the policy fails as more and more comfortably off people effectively downshift work and lives at ever earlier ages.

Even if that were the intention it is quite unclear if it might be manageable. The current global economic conditions are quite unlike any in the lifetime of any of our currently elected politicians out side perhaps of Japan. Half decade lows in prices of gold, oil, iron ore, copper, corn and interest rates point clearly to a deflationary environment. Growth of any sort under such circumstances is a rare thing. The goldilocks economics proposed by the Council of Ministers works the other way round – the productivity gains eg from new technology, produces price deflation (and increased consumption). We have it the other way round – a sequence more likely to lead to recession. The more likely outcome is lower costs, lower wages and an even lower tax revenue for the States. What is suggested is a step closer to what is needed than any previous growth ambitions of the States. It is still some way however from the steady state economy² that I would advocate.

Of course I have again to comment on the quote. “Someone's sitting in the shade of a tree today because someone planted a tree a long time ago”. Warren Buffet . You might think that in an Island so dependent on the finance industry they would have got right the spelling of the name of probably the world's most famous living investor -Warren Buffett. If you cannot get such an easily checked detail right .........

Of course Mr Buffett was referring to investing for the long term (smart man - he's right too on that aspect). However there is also a deep fallacy in that quote. It is not the case that all trees are planted by someone. Who do you think planted the Amazon, or the taiga, or the great rainforests of Africa? Trees for the most part are self seeded, they are the bounty of nature. When you start thinking that a tree can only be because someone planted it, you are in danger of thinking all that is of value is that which humans create. It also underlines a critical point so often overlooked in economics. It is nature who provides 'free services' like trees and pollinators and rain without which we would have no economy. We cannot have a sustainable economy, let alone growth, unless we have a sustainable underpinning foundation – the ecosystem services. As our species consumes and pollutes increasingly beyond the capacity of the planet ³ , as it has done since the 1970's, we get further and further from that possibility.

1/ http://ije.oxfordjournals.org/content/early/2011/03/16/ije.dyr061.full

2/ http://steadystate.org/discover/

3/ http://unearthnews.org/2013/10/01/earth-overshoot-day-how-can-we-reduce-our-ecological-footprint/

That's not employment, its just unpaid work

I've been having an ongoing problem with the new manpower returns since their introduction.  The latest twist was to get an e-mail confirmation of successful submission , despite the error below, and then followed up by a call from someone at the population office telling me in so many word that I hadn't submitted the form.  I also rather resent being called client by them. Do they know in its primary meaning it refers to a dependent, one who is under the protection of another? 

My ongoing problem isn't really about the technology. It is rather more about the lack of analysis or comprehension of  the distinction between work and employment.


I have run my company for over 25 years, and until the recent change never had any problem with the manpower return.  In the previous incarnation the return asked for data to be supplied based on hours worked (to distinguish part time and full time workers), and on a few other residency/5 year qualification etc.  Simple stuff.  It also was quite clear about working principals had to be included. That is the important bit, because a principal (ie an owner) does not have to have a contract  with a company they own, and is not necessarily an employee.  If they don't take a wage/salary or any other emolument and have no contract they cannot be an employee. That is how I have run the company for some years. 


Under the new form however it is not possible to make a return for a trading company without including the details of at least one employee. It uses that terminology, and requires a social security number and the type of employment contract (full/part/zero hours).    The instructions are clear that self employed people should complete the form - no problem if they are taking an income from the business. But what if the only person is the owner, and they are not remunerated or have a contract?

It gets even more bizarre if the company, as mine has, operates more than one business.  In this case it seems the only way to make a submission is to be employed in each company.  Goodness knows how many fake part-time or zero hour employment contracts have had to be entered by non-employed (at least in that business) principals just to get the forms submitted.


I cannot work out if the problem is a serious analysis failure, or a genuine incomprehension at the distinction between work and employment.  Anyone is free to do work gratis. How can it be otherwise?  If there is no pay or emolument and no contract it is not defined as employment (which is strictly the legal form of a master/servant relationship).  If it were not so  all those honorary police would have to appear on the parishes' manpower returns and all those charity shops would have to be filling in details of all their volunteers.


It is true that a Jersey company (not a business!) really ought to have a resident director, so there likely will aways be one person who ought to make a return of working  at the company level.  In fact if you read the new law on housing and employment even this is questionable for 'regulated' entities - since a non-resident director of one of  those can work in the Island for 10 days, sometimes longer, without having to register or do almost any of there things everyone else does under the Control of Housing and Work law 2012.  So a resident director could in fact do no work and hence not be required on the form.

If you are wondering, yes it is possible to have a business where no one is employed.  Many entrepreneurs would consider that a perfect model. You can outsource almost everything.  It costs of course, but it is perfectly legal to do so.   If what you trade is information or documentation it might be quite feasible to do that on a web site that once set up needs  no actual manual intervention.  It is one reason I don't fully subscribe to the view that promoting business will increase employment.  It aint necessarily so!



I can understand the desire to ensure people don't improperly slip through the system, but the administrative process really should be able to deal with the reality of the legal status of voluntary working principals.  It shouldn't even require that much work on the return forms and database.  The only reason I can see for collecting the data asked for is to check social security payments.  However even that is not quite right since if a director is paying class 1 contributions, there is no class 2 to pay.  Similarly if they over the pension age, self or unemployed there is no contribution to pay.


If my sources are correct this manpower return system was written by an outfit in Southampton.  Just perhaps it would have been wiser to have commissioned  one of the competent local software companies which might actually understand the local law.

The 1 percenter next door.

Oxfam's report on wealth inequality has produced some interesting coverage.  It was quite timely for us in Jersey as the Chief Minister had recently commented on the high levels of poverty locally¹.    The claim that the top 1%  will own half the wealth of the world within a year or so is both shocking and very worrisome. 

I am fully in support of the broad thrust of the report - the inequality at  the extremes is simply unacceptable.   Numerically the wealthiest 80 people in the world have the same wealth as the poorest  3.5 billion. It is not the same as income, though of course if you have billions in wealth , you will surely have a huge income too.  There were of course some negative comments on the report, one of two of which bear some examination.

Radio Jersey covered it  with a couple of guests.  It was a very poor debate.  The respondents conflated income with wealth(assets) and some time was spend bemoaning the tax rates on the middle earners locally.  There is an issue there, but it has little to do with the global wealth inequality of the Oxfam report. It is like mistaking a balance sheet for a cash flow statement.  However it does raise one of the other argument deployed by some detractors - wealth is an inadequate measure of poverty.
 
Certainly it is possible to be asset rich and income poor.  Dairy farmers in the UK who are getting less per litre of milk than it costs to produce might well be in that position.  Conversely it is possible to have high income , but no net wealth, especially if you have a 'high maintenance' lifestyle. It is half the reason some celebrity footballers and performers quickly go bankrupt if their income stream declines. 

This conflation of income and wealth is one of the key points made in a derogatory piece in the Spectator.  They include this graphic

Quite why they think the millennium goals set in 1990 should still be the standard in 2015 isn't explained.  Nor do they appear to have heard of either inflation , or of sudden currency movements (The Swiss franc mover 30% last week!  Exceptional, yes, but it happens)  $1.00 in 1990 had the same buying power as $1.85 in 2014 ³. Annual inflation over this period was 2.59%.  Or put another way their graphic implies no significant change in the actual inflation adjusted income poverty of the poorest in the  world.

The same article then goes on to make a real howler of a claim.  According to the Spectator this graph show inequality is falling long term.  It is true there is a drop from 2000 -2010, but even they admit there's been an 'uptick ' in more recent years.  But clearly the level in inequality is higher in this decade than it was at any time in 1960's, 1970's or 1980's ! 

Perhaps the most valid of the problems  directed at the wealth report is the impact of debt. The measure Oxfam used is effectively  net assets, so people in debt are identified as the poorest, poorer than those who have no assets, but no debt.  That means, for example, if you have negative equity on a house you are likely regarded as poor.   However that fact hides a twist.  Generally  you can only go into debt if yo have surplus income over basic requirements.  If you have no visible means to pay back a loan you are very unlikely to be able to secure one.  Where it does prove possible for the income poorest it in place like India where bonded labour abuse is used to effectively enslave people.

Debt might  also distort the picture in another way.   It is quite possible to have wealth in shares that are valued significantly but in companies that have 0 or even negative net asset value.  We are not talking small companies here either. Currently, for example, I believe BT has NAV of 0.  It is not magic - as long as the business can service it debts it may have value.  But therein is the problem It own BT shares are they count as an asset, even though they have no asset value!  The company has no wealth, but if I have some shares in them I do have wealth.  It  looks like a paradox arising from the artificial separation of concerns between the owner of the shares and the owner of the debt.


While it is clear the top 80 have huge wealth, and the bottom half almost none, the question arises who are the one percent.  The distribution of wealth follows a power law.  At the higher end a small change makes a big difference.  $3,500 net assets puts you in the top half globally ⁴. To be in the top ten percent requires around $77,000.  The mean wealth of the top 1% is about $2.5million, but the lower end is around $800,000 (A little over half a million pounds).


Half a million pounds might seem an impossible sum to younger readers, but it is attainable.  Someone in their fifties who has paid off a mortgage on a three bed detached house with a garden in Jersey is almost there.  I don't know if the Oxfam methodology accounted for it, but social security is another implied source of wealth.  Taking just the pension aspect, if you are near to claiming the  age pension in Jersey you are in effect getting an index linked annuity, with full contributions, of  £10,200 per year.  To purchase such an annuity would cost roughly £300,000 at age 65 ⁵. Many developing countries do not have a functioning state pension system for the poorest, who do not have the disposable income to contribute into any system.  All that is before considering any employer or private pension arrangements. 

A pensioner living in a mortgage free house on no more income than the state pension wouldn't strike most people as particularly rich , certainly in income terms.  Yet such a person might arguably be in the one percent globally.  Which makes the point that if our pensioners are wealthy, the poor globally really are poor.   The other observation worth making  is that it is exactly this fifty year old mortgage free cohort who  attend  parish assemblies and vote in our elections.  Do you think that is a coincidence?


¹ http://jerseyeveningpost.com/news/2015/01/03/jersey-should-not-have-such-high-levels-of-poverty-says-chief-minister/


² http://blogs.spectator.co.uk/coffeehouse/2015/01/what-oxfam-doesnt-want-you-to-know-global-capitalism-means-theres-less-poverty-than-ever/


³ http://www.statista.com/statistics/191077/inflation-rate-in-the-usa-since-1990/

⁴ http://www.economist.com/blogs/graphicdetail/2014/10/daily-chart-8


⁵ http://www.pensionchoices.com/annuity-rates/index-linked-annuity-rates/

Privates on parade

It has not been a good week for those who hold that the private sector is better than the public for delivering services.   Today we hear that the UK government wants to strip the consortium running nuclear clean up at Sellafield of its £20 billion contract.  Previously the operators of the only privately run NHS hospital in the UK indicated they wanted to pull out.   In both cases it looks like the operations will revert to the public sector.  Both are far too important to be allowed to fail, and both cite spiralling costs as a factor. 

In my opinion we should never have had nuclear facilities largely because we simply do not know how to deal with the waste properly, and it is morally repugnant to throw that burden on countless future generations. The real costs of nuclear are coming home to roost - decommissioning Sellafield is expected to take over 100 years. and I predict costs will increase even further.

Hospitals are at the other end of the spectrum - a highly socially desirable undertaking  Circle who run Hitchinbrook claim they have saved the public £23million.  That's similar to what  NPM makes annually running Sellafield clean up operations.  Of course for private enterprises that is the name of the game - making a profit.  If  one is not visible, or a contract has turned to a loss, they will seek to exit, possibly renege, or even go bust.  It is the government, the people, who stand as the provider of last resort.  It is a factor often overlooked by those who argue fervently that private is more efficient more cost effective.  The Government effectively carries the insurance burden of those large private ventures that get into difficulties or fail.  Just look at the banking crisis and who picked up the costs there.

Jersey has in recent times taken this private good, public meme to heart.  We have incorporate ports and removed the housing stock from public ownership.  It is as though none of the ministers had head of WEB and the reasons why it had to be renamed and reinvented.

Just as private is not a panacea and not always a good outcome, so public can be problematic too.  The truth is that if your venture is under capitalised, if you have demotivated, under trained or overstretched staff, no matter whether you are public or private you will struggle to succeed.  What is certain is that there will always be someone prepared to take a risk to make a profit, and there will always be the expectation the government will be there to pick up the bits when it goes awry.


http://www.telegraph.co.uk/finance/newsbysector/energy/11340733/Sellafield-nuclear-clean-up-firms-to-be-stripped-of-20bn-contract.html

http://www.telegraph.co.uk/news/politics/11334809/Company-running-only-private-NHS-hospital-pulls-out-of-contract-amid-AandE-crisis-and-complaints-of-abuse.html

FinTech is no silver bullet

I was quite amused by the recent piece I read about the CoM creating a new minister for finance, digital and competition. I have no problem with the Island developing a bigger digital sector. I endorse diversity as a strategy but the conjunction of the item with the timing and other pieces has to be commented upon.

Conversations with former colleagues with whom I worked in the previous tech bubble made me aware a year or so ago we are into bubble territory, rather like the late 1990's. Stories of people pitching non existent projects and others of companies being bought without any technological due diligence abound. Valuations based on irrational projection of almost meaningless metrics. I've seen it all before and it is here again. So it is no surprise some in political circles want to jump on the band wagon. Of course a few will make it and some fortunes will be made, but many others will fail.

Locally the drive has focused very much on FinTech. This is understandable and is likely very sensible for individual companies, but it is probably a big mistake for the Island. I want to differentiate here between the more disruptive startup and the established support business role. There's a need and perfectly good business to be done installing networks, managing hardware and patching servers for local financial organisations. That's not really what we are looking at here. FinTech really is looking at the small disruptive start up software company.

Whenever I have been involved in such companies there has been a common theme to the successful ones. They have had ample access to and understanding of the domain knowledge and problem to be solved. Clearly locally there is specialised domain knowledge in financial services and it makes sense for a startup to utilise that. So what is the problem?

Risk is the answer to that, and specifically that it doesn't really represent an effective diversification of an already over balanced economic base. It does not matter that the skills are different and the business model is different the odds are that a problem in the financial service sector locally would also be a problem for the associated digital companies. It would be better strategically to concentrate the digital sector on the much smaller local industries like tourism and agriculture. There's plenty of opportunity, and some requisite local domain knowledge in both those areas. Just look at airBNB or this list http://modernfarmer.com/2014/02/10-silicon-valley-agriculture-start-ups/ to see just how big the opportunities might be.

I am also a little bemused at the decision to include competition in the responsibilities of the new minister. I can see how you might need to do something about its lack for the finance sector when we have seen so many scandals involving the fixing of Libor, Fx and gold prices. However software development is a highly collaborative, cooperative undertaking. That's one reason why people in the last tech bubble started creating incubators and hubs. We even have on here in Jersey see http://www.digital.je/hub.

 It is a little surprising therefore to see Digital Jersey and some others locally are promoting the Barclays accelerator. Good for a company that gets selected, but again not so good for the Island: “The 10 companies will be guided through the process of growing and developing their businesses with the help of funding of up to $100,000 from Techstars. They will have world-class mentorship from industry experts and will be based at the London Escalator, near London’s Tech City, giving them the optimum environment to thrive “.

Why on earth would we be encouraging the most promising local startups to upsticks to London if we are trying to build a local digital economy? It makes no sense to me. It is the sort of irrational thinking that happens in a bubble – anything that mentions the buzzword is talked up positively even if it is a pile of ordure.

Some relevant links

http://jerseyeveningpost.com/news/2014/12/04/digital-jersey-suffers-setback-over-bitcoin-fears/

http://jerseyeveningpost.com/news/2014/12/12/new-ministerial-role-will-strengthen-digital-and-finance/

http://www.digital.je/news/jersey-businesses-can-accelerate-with-barclays

http://fortune.com/2014/05/08/yes-were-in-a-tech-bubble-heres-how-i-know-it/

http://en.wikipedia.org/wiki/No_Silver_Bullet

The Chief Minister designate and the environment.

Sometimes it is what isn't said that tells you most about what is happening.  Read the Chief Minister designate's piece from the order paper for tomorrow's States  sitting at http://www.statesassembly.gov.je/AssemblyOrderPapers/2014/2014.11.03%20Order%20Paper.pdf.

If you want the key highlight, or is that lowlight?, I have written a short letter as Chair of the Jersey Climate Action Network to send to all the new Ststes members.  The second paragraph reads
 

In the Chief Minister designate's statement on the order paper for 

tomorrow's States meeting the word environment does not appear 

once in ten pages. Neither does climate. Sustainable does appear 

twice :

page 3 sustainable job opportunities 

 

page 5 for sustainable growth.   

That's it folks.  The environment, ecology, sustainability (in the real meaning - 'sustainble growth' is a contradiction) have no significant place in the next 3.5 years in policy in Jersey.

The only question we need ask is whether we take that lying down, or to paraphrase  Shakespear, in Hamlet

Whether 'tis nobler in the mind to suffer
the slings and arrows of outrageous fortune,
Or take arms against a sea of troubles,
And by opposing end them?  To die, to sleep;
No more; and by a sleep to say we end
the heart-ache and the thousand natural shocks.