Saturday, 24 January 2009

Think always of the little people

There seems to be an obsession these days with what "government" and "business" can do. When problems arise there are countless interviews with politicians and economists suggesting that this or that policy should be laid down from above - government should do this, business should do that.
What about us? What about the little people who end up paying for it all?

I suggest an alternative basis for national economic planning. I suggest that we plan things from the bottom up not the top down. It's just a thought for your delectation. Let me explain why I find the idea attractive.

Everything, and I really do mean everything, is paid for by the man on the street. He isn't necessarily on a UK street, when we export goods we do so because somewhere in a land far away there is a person at the end of the chain. We export a pair of fine leather gloves, they end up on the hands of a fellow in Switzerland. We export a chain-making machine, the buyer makes chains and sells the chains. The machine is initially paid for by the chain maker but he can only do so from the proceeds of sales, it is the end purchasers who really pay for it a few cents at a time with every purchase of the finished product. Farmers sell most of their produce to wholesalers or supermarkets, but they are only prepared to pay what they pay in anticipation of then selling the produce on at a profit to us little people. And so the story goes for all businesses. Even in the world of high finance the massive sums gambled by pension and insurance funds have an end user, a human end user, who either gains or loses from their activities.

It is easy to lose sight of this when talking about the activities of big companies and governments. They deal with mind-boggling sums of money as though it were loose change. Want some windmills instead of effective and affordable power stations? Have £100billion. Want a congestion charge scheme in Manchester? Have £1.5billion. Want to sell those bundles of loans? Have £50million. None of it seems to matter as much as it should, it's just figures on a page to those playing the game.

Losing sight of of the little people leads to bad decisions and expensive waste because the strongest check on judgment is removed. The strongest check on judgment is conscience. Conscience forces us to weigh in the balance the adverse effects our decisions might have on others as well as the potential gains. Some adverse consequences are so serious that our consciences do not allow us to take a risky course of action for fear that those adverse consequences will follow. It is why most of us resist the temptation to drive at sixty miles per hour along an urban street even when we know there is no speed camera and very little chance of getting a ticket. It is why most fund managers do not put investment funds on the three-thirty at Doncaster, most archers don't practice in a busy shopping centre and most chefs don't urinate in the soup. For those whose conscience needs a nudge, many acts that do harm to others are also criminal offences or can lead to civil claims for compensation.

Lose sight of your possible victims and it becomes easy to look only at potential gains. The whole game then changes from reaching a balanced judgment to looking at only one side of the equation. This can have two effects. First, and most obviously, too many risks are taken causing inevitable losses when they do not pay off. Secondly, the exercise being undertaken is seen as being for the benefit of the undertaker rather than for the benefit of others. We have seen this in the way banks have put their shareholders and investors at risk by trading in instruments they could not value and paying themselves huge bonuses by assuming the value was high and that massive profits were being made. Now that the instruments have been seen to be seriously flawed and, almost certainly, not worth what the banks claimed they were worth the effect on the little people is simply enormous. Not only do their pension funds look like a rose bush hit by a swarm of leafcutter wasps but the problem is exacerbated by the increase bonuses have made to administration costs.

English law does not have a specific provision aimed at seeking recompense for the innocent victims of such shockingly bad business judgments. It is different in the USA where there are mechanisms aimed at precisely this situation. Financial mismanagement is a serious target for American law because America approaches much of its lawmaking from the bottom-up not the top-down. Its laws are made and applied for the benefit of the little people. Of course it also has top-down laws but these are severely constrained by the terms of the Constitution which makes clear that government exists only because the people permit it. The default position is that harm done by one person to another should result in compensation and, where appropriate, criminal penalties. This has its downside, as we see in particular in the willingness of juries to award vast sums for minor physical injuries but these are almost always reduced to more sensible levels on appeal or by agreement once an appeal is either launched or threatened. What, to my mind, is admirable about America's approach to the criminal and civil law is that it sees financial victims of careless trading in the same light as physical victims of careless driving. It can only do so by recognising that the law exists to protect the weak from the misdeeds of the powerful.

All over America directors and senior managers of failed investment firms are facing prosecution and civil lawsuits for taking undue risks. Of course it can be said that America's laws are not effective because they did not stop bad deals although the reality is that no one can say how many more bad deals would have been done had those laws not been in place. What is clear is that those who took bad decision have to carry the can. Here all they carry is their latest bonus.

We also see the effect of ignoring the little people in the activities of government. Decisions are often taken according to whether they will benefit the government rather than whether they will benefit the citizens. There are innumerable examples of this from the last eleven years. A small recent example has been the holding of cabinet meetings in cities outside London. There is absolutely no possible benefit to the little people from this gimmick. It has been done solely because a government that wants to hold onto power for the sake of holding onto power thinks there might be some votes in holding cabinet meetings in cities containing many marginal constituencies. Each away-day costs taxpayers about £200,000 - a sufficient sum to run a small primary school for a year, a sum roughly equivalent to the income tax paid in one year by fifty average earners, a sum roughly equivalent to eight years' gross wages of an average earner, a sum higher than the average house price in the UK over the last year, a sum sufficient to feed a family of six for twenty years.

Only by keeping the little man in mind at all times can the cost of government decisions be seen in context. But it seems to me far more important to keep the little people in mind so that government constantly remembers it is there to serve us not itself. It is there with our permission, we are not here with its. And therein lies the greatest danger of socialism. It is not just that it requires adherence to a flawed ideology, although that is bad enough, it is that the State and the government are given an existence separate from the people. The socialist State's primary aim is to preserve itself. The socialist government's primary aim is to preserve itself. This leads to a way of thinking evidenced every day by poor Gordon and his cabinet of lightweight autocrats.

Are the people doing what the State wants them to do? If not they must be forced to do so because dissent weakens the State and that cannot be allowed. The longer a single socialist government remains in office the more autocratic its rule becomes. This is inevitable because it is idealogically incapable of admitting to error and reversing bad policy. To do so would be to admit error by the State, a concept unknown to socialist dogma. Thus new policy concentrates on reinforcing old policy rather than improving the lot of the little people. It is a top-down process in which the established policies of the State must be imposed regardless of the consequences.

There is nothing surprising about any business activity turning bad when it is operated for the benefit of its owners or managers rather than its customers. Concentrate on yourselves rather than the little people who eventually pay for your mistakes and you cannot reach a balanced judgment. Bad decisions will be made. Expensive, bad decisions. As in business, so in government. Leglislating against the people rather than for the people is exactly the same as an investment fund operating to maximise it directors' bonuses rather than its customer's returns. It acts against the central purpose of its existence with the inevitable consequence that the little people will lose.

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