On Monday evening I heard a lecture given by Judge Lenarts, Vice President of the European Court of Justice. 

            He began by conceding  many thought there is a democratic deficit in the EU. He argued that the Council and Commission are not directly elected. More power to the EU undermines national Parliaments. There can be a lack of transparency in a  complex decision making process. The EU Parliament does not have full powers of control over the EU government.

             So far so good. However, the thrust of his lecture sought to establish two propositions. The first is that the EU is not a state and does not intend to become a state. The second is that the ECJ, Parliament and Council between them do offer appropriate democratic accountability for the institutions of the Union.  He argued it with several audience pleasing genuflections to UK democracy and court systems, with intelligence and numerous case examples of ECJ decisions. Each was designed to show how in his view the ECJ tried to uphold or strengthen democracy at both EU and national Parliamentary levels.

              I found it unconvincing as an argument. It is difficult to maintain that a set of institutions that have a flag, a supreme court, a currency, a central bank, a Parliament and a vast law code is not seeking to be a state. It is also difficult to argue that a Court which sets out to judge and decide against the wishes of national Parliaments is other than an attempt to impose a superior international law and discipline on unruly democracies that think differently about problems. It was interesting to see  UK Judges, UK Supreme Court judges and a Minister sitting at his feet to hear how he thinks the superior jurisdiction of the EU will develop and affect them.

               The problem with this dispute is that it is fundamental to understanding and tackling the problems of the Euro and the current disagreements between EU states. The Judge took an altogether very laid back approach to it all, as if the EU has all the time in the world to evolve answers to its democratic deficit. Meanwhile the system is posing crucial questions of why should citizens in Greece or Spain obey the policies and laws of the EU  when they feel powerless to change them?

           The UK is a heavy contributor to the EU budget. The EU’s wish to increase this budget in cash and real terms is unpopular in the UK. Many people here think that we need to cut our deficit, and that we need to do this by reducing public spending. EU spending should be at the top of the list of budgets to cut, not at the top of the list of budgets to protect and increase.

            The UK in particular dislikes the high subsidies paid to small and inefficient farmers on the continent from our money. We dislike the regional policy, which entails UK taxpayers subsidising relatively affluent regions on the continent. We dislike the large regulatory bureaucracy, which imposes costs directly through the EU budget, and indirectly by requiring us to have so many enforcement and compliance officials in domestic departments.  There could be a fairer and cheaper agricultural and regional policy, and less regulation. Mr Blair was promised agricultural reform in return for losing some of our rebate. The reform was never delivered.

             On Wednesday in the Commons the government will ask the Commons to express its view on this important issue. Many of us think that  now is the time for the UK to say that we do not want to lock ourselves into a rising budget for the period 2014-20.Maybe  now is the time to consider how the budget could be cut, or to consider how the UK could have a new relationship that did not require us to be part of the expensive policies that we currently do not like. The government has tabled the idea of a real terms standstill. Mr Reckless, a Conservative MP, has proposed an amendment to press the EU for a real terms cuts. The UK has a veto over the seven year budget settlement, a rare event in EU matters these days. There will be a debate over how far this veto can be used and when the UK is going to set out the new relationship the government says it seeks.

           Past governments have tended to concentrate on the UK’s net contribution to the EU. We should, of course, look at the gross contribution. Getting some of our own money back in ways the EU wishes to spend it is no great deal for us. It is all public spending, and all needs tax revenue to pay for it. That is why we should be able to  review all of the spending and decide which we no longer need, and which we should sacrifice in difficult times because it is not a priority.

           In the event of a veto being exercised so there is no new multiannual framework Article 312 of the Treaty says they have to stay within the limits of the last year of the old multiannual framework, i.e. no increase.  If the Council and Parliament fail to agree  or set an annual budget, the Commission proceeds on a monthly basis  with no increase on the previous year.

        I read in yesterday’s papers that the Uk government will soon receive advice from Lord Heseltine on how to promote growth. Advice from anyone with ideas on how to do that is welcome. Lord Heseltine himself was a successful businessman in the magazine industry for many years and knows how to grow a small business well.

        Let’s hope  his advice will concentrate on the tax, banking  and regulatory obstacles to growing small and medium sized enterprises.  What we do not need is an agenda to recreate the regional government the Coalition has rightly just demolished, nor to turn the Local Enterprise Partnerships into the RDAs which  have also bit the dust. Some of the articles imply the report he proposes wishes to put the clock back and spend yet more money on needless layers of regional government.

         Regions which depended on regional development strategies and RDA schemes remained poorer and less successful than regions which did not. Indeed, during the high period of Labour’s support through conventional regional subsidies, the out performance of London and the South-east grew rather than diminished.

          The last thing this Uk economy needs is yet more bureaucracy and government administrative costs. The RDAs often ossified the private sector land and buildings markets, leaving investors with less choice and flexibility than the open market approach in the most successful areas through private sector competing agents and landlords.

             Lord Heseltine also favours unitary local government to replace Counties and Districts. I have no problem with that,as Berkshire opted to carry out that change 20 years ago.  I do think, however, it has to be done at the request of the local area to ensure smooth passage . Unhappy Councils and Councillors can make such a transition expensive and problematic.

             He also favours elected Mayors. These have been offered in various parts of the country, but have not proved popular with electors.  Reforming local government may be worth doing for its own sake, but will not of itself transform the UK’s growth prospects. That requires lower taxes, more sensible regulations, and easier access to bank credit and risk capital.  More demand also helps.

          In a majority style democracy there is always a danger that the majority will get things wrong or will fail to heed wise words by the minority. This should all come out in the wash of elections and the public debate. A mature democracy also understands that treating minority groups and dissenters well is an important part of being truly democratic. Tolerance of others’ viewpoints is important, as long as they all accept the underlying system of resolving conflicts by debate , by votes and by allowing differing conducts and views to co-exist wherever possible.

          Some self appointed “left wing” moralisers like to castigate Conservatives as failing to appreciate the problems of minorities, of failing to understand what it feels like to be discriminated against and monstered for who you are rather than for what you do. In falsely portraying Conservatives like this, they give Conservatives direct experience of the minorities problem. It means we understand only too well what it feels like, as with their friends in the media the “left” seek to misrepesent us and put us on the back foot on so many issues.

           For years Eurosceptics  have been made to feel that they are  part of a minority by being  Eurosceptic. Never mind the polls which have often suggested majority support for not being in the Euro or for being critical of the Euro project. For a long time if you wished to argue that the Euro would be bad for jobs, prosperity and freedom you were thought by the BBC and others to be  beyond the pale of acceptable political views. Today many are rushing to appear as Euro currency  sceptics, but still regard it as an unacceptable view to say the Uk just wants to trade and be friends with the EU but  does not wish to be tied up in common government. Being a Eurosceptic is still a barrier for some when trying to get over  views on other topics.

             Because these commentators and media people regard this viewpoint as “right wing” – ignoring people like Benn and the Labour MPs who agree with it – Eurosceptics  are then often treated to guilt by association. The fact that they want a more democratic UK with less EU interference does not make them  a fan of the extreme right, any more than a democratic socialist wanting more equality from state action wants a communist tyranny modelled on the USSR circa 1956. It is time more commentators saw that Eurosceptics are democrats who have seen just how much damage the Euro and false political union can do to the peoples of  Europe.

          The Uk motor industry has been a success story in recent years. Tata’s launch of the new Range Rover has underlined its move to strong growth at home and abroad, with attractive 4 wheel drive products that the world market wants.  BMW’s Mini remains a popular vehicle, whilst the leading Japanese companies make high quality cars in the UK and export around Europe from this base. The Uk has become a specialist centre for engine manufacture for groups like Ford and BMW. Cutting edge engineering for Formula One cars remains a central feature of the UK’s exposure to this important sector.

         The decision by Ford to close its Transit assembly in Southampton was part of a wide range of closures and retrenchments around Europe. The industry is now being badly hit by the collapse in demand for autos in the stressed southern countries of Euroland, and by the slowdown in France and Germany. Much of the Euro area is in  or is moving into recession. Motor manufacturers have high levels of operational gearing. When final demand falls away stock levels need to fall, so demand for new product from the factory falls by considerably more than the decline in final customer demand.

          The way through for the UK industry is to sell more into the growing markets of China, India and the rest of the emerging world, and to design and produce such good products that they will gain market share even in declining markets.  The issues today for motor manufacturing relate to energy and logistics costs  more than to labour costs. Modern factories are highly automated and very energy dependent. Bought in materials and components are crucial to cost and manufacturing efficiency. The Uk government has to have in place an energy and transport policy which is friendly to mass production of engineered products.  It also needs to make sure there is a plentiful supply of skilled engineers and managers capable of organising sophisticated modern output.

          The figures for much of the rest of the EU make depressing reading. In September Greek purchases of cars were down by 48% on September 2011. In Spain the fall was 36.8%, Italy down by a quarter, France almost by a fifth and Germany itself down by 11%. The huge falls in the southern states shows how intense the austerity squeeze now is. The collapse in car sales will help mend balance of payments deficits, at the cost of hitting output  across the Eurozone. UK car sales are up so far this year, though even here there was a drop in September.  The Euro crisis is now having a big impact on living standards and jobs.

          After the Prime Minister has called for a “new relationship with the EU” for the UK, the Foreign Secretary has pointed out that the UK public is becoming extremely unhappy with the many powers sucked out of the UK into the EU.

            The new policy some in government and some leaders of business seem to want is a new deal based on full membership of the single market, and no membership of the Euro, banking union, fiscal union and the rest.  We need to ask is this feasible? Could this work?  Is this something we are likely to be able to negotiate?

           This attitude rests on the assumption that the single market is a clearly defined set of policies which offer us good access to other EU markets.   It  implies that the single market is broadly a free trading or market opening device. This is not, of course, how some on the continent see it. They see it as a system for governing unruly markets, a  manifestation of increasingly strong centralised government from Brussels. The single market to them has to have a social dimension, it requires policies for social cohesion, regional fairness, environmental intervention and the rest.

           This means that trying to seperate those policies which are central to the single market from the rest which are necessary for a strong federal government appropriate to a single currency is difficult and itself the stuff of disagreement. The UK may think that labour laws, trans European networks, skills and training, public health and the rest are not part of the single market, but others think they might be. Is health and safety a matter for national determination, or is it essential to be settled at EU level? Does a single market need universal rules on benefits and income top ups? Do we have to pay benefits to people who come under the free movement provisions to the UK and who then do not find work or lose their job?  Does a single market imply open borders for the free movement of people? Is carbon pricing a market measure, or a major impediment to the competitiveness of Uk companies?

           The immediate negotiation is about banking. Here the wish is to say all the rules  agreed so far – and there are many – are single market matters. Any new rules agreed in the name of a banking union are a step too far. How then, if others accept this distinction, does the UK prevent the Euro group using its muscle to impose Euro style regulations through the single market mechanisms? How can the single market section share a regulator, the European Banking Agency, with the Euro area? How, even with a split voting system, can the UK be sure it will not in future be dictated to on banking matters by the Euro group, who may have the support of other non Euro states wishing to join the Euro?

           It may be the case that we need less than the so called single market to be able to trade with other EU members. What we wish to avoid is having to accept regulations and standards on products we wish to export to non EU destinations, as these can be an impediment to our trade. The rest of the EU will be reluctant to let the UK out of regulations we see as a needless cost and they see as a necessary part of a socially and environmentally acceptable controlled market. The UK wants free trade, not single government.

           Once again the GDP figures show that continued real increases in public spending lie behind the changes in GDP.

          Once again the media present a very distorted picture of what is happening. They say that Olympic tickets account for some of the faster growth – around 20% of it. They fail to tell us that increases in real  public spending accounts for twice as much as the Olympic tickets, or 40% of it.

            The 0.1% increase from manufacturing and 0.1% increase from water was offset by the 0.2% fall from construction. Services account for the 1% gains overall. These split 0.4% from the public sector, and 0.6% from various parts of the private sector, including  hospitality related to the Olympics.

            Why do most of the commentators persist in distorting what is happening.? Why don’t they point out that increases in real public spending  have made a positive contribution to GDP as officially calculated all this year, and this quarter the gains are large. Some of the private sector service and manufacturing gains are the result of catch up from the previous quarter which enjoyed  the extra bank holiday.

        Yesterday the Conservative party chose new people to fill Select Committee vacancies, following the reshuffle.  The party elected a global warming sceptic, Peter Lilley, to the Climate Change and energy committee, a fierce  opponent of Quantitative Easing to the Treasury Committee, Brooks Newmark, and a strong critic of the Common Fisheries policy, Sheryll Murray, to the Environment committee. This could make for some interesting sessions.

           The Governor of the Bank has recently defended quantitative easing.  He has also made clear that as far as he is concerned, all the bonds bought up by the Bank will one day be sold back. It will not, of course, happen on his watch. The  longer we wait for the sales, the more bonds the Bank holds will be paid back by the state, paying  itself.  Effectively they are cancelled.

             The Governor wisely did not overclaim favourable outcomes for quantitative easing. He was fairly gloomy about the state of the Uk economy, despite the likely news that the economy came out of recession again last quarter.  He asserted that QE had limited the damage caused by the squeeze.  He also hinted that we are fast approaching the limits of what monetary policy can achieve.

              There is no doubt that there was a shortage of cash in the UK economy in recent years. That could have been dealt with by more radical and rapid moves to sort the commercial banks out. Instead, the previous government took large share stakes in them to leave them unreformed.  They  allowed  a policy of  extend and pretend on difficult loans delaying this process of sorting the banks out and recapitalising them. The Bank and government felt it had to create some more money and inject it by buying bonds off the private sector to offset the shortage of money. Money was not being  generated in the more normal way through a growing economy financed by credit creating commercial banks.

           We also need, however, to consider the other consequences of the unusual monetary policy that has been  a  striking feature of the last few years.

            Firstly, it has hit savers hard. Low interest rates have slashed  savings income. This in turn has reduced demand from the prudent and the retired who rely on savings income to supplement their budgets.

            Secondly, it has led to large increases in the pension fund deficits of many companies. The liabilities of pension funds – the future pension payments – are valued based on current bond interest rates. If bond interest rates are low, the fund needs to buy many more bonds to generate the bond income to pay the pensions. At the ultra low rates available on bonds today, pension funds have serious problems. Under the new tougher rules, a company has to value the pension deficit, and then make payments into the fund to correct it. The company also has to put the pension deficit as a liability on its own balance sheeet, making it more difficult for the company to borrow to grow its business.

          When people look at the better recent  cash generation of big business, they ask why don’t they rush to invest this money in new plant and equipment? Their worries about the deficits in their pension funds, and the impact of them on their balance sheets, deters companies in that position from making new business investment.

           Thirdly,  the period of  crisis followed by ultra low rates and QE has also seen a substantial devaluation of the pound. This has helped fuel a higher rate of inflation in the UK than in most other major advanced economies. This in turn has cut real incomes and reduced spending power in the economy.

            Fourthly, people retiring have had to buy annuities at very poor rates, meaning they have much lower pensions than they expected. This has also reduced demand.

           When this latest round of QE expires, would you do any more?

(this post first appeared on the Nelson Touch site)

I have always been a fan of the internet. It is one of the things that makes me optimistic. It is one of the reasons the present is better than the past. It is an exciting, fastmoving, radical technology. It is carrying out all sorts of transformations in society, business and government.

In the early 1980s I was an early enthusiast for computerising all the business data and records where I worked. I was an early adopter of the mobile phone, lugging round one of the brick sized objects with limited battery life that were the forerunners of today’s little gems. In 1992 I wrote “The Global marketplace” which forecast the digital information revolution without knowing that the detail of the technical work was well advanced on the worldwide web which would speed the transformation. When the internet at last arrived for all of us, I was early to the shops.

I wrote in 1992: “The new generation (of global capitalism) is based upon open systems, networking, and new communications technology. It all points in the direction of work being increasingly divorced from the workplace, fashions,fads and messages passing round the world rapidly, and successful business being able to customise for the mass consumer. The politics for such a world are very different from the politics pioneered to meet the challenge of mass factory organisation of the mid twentieth century.”

It is still too early to say just how many radical changes to working practises and service the web will enable. Recently we were discussing the role of the internet in learning. The web allows students access to the best teachers and lecturers in the world, and to a vast amount of data and material well beyond the capacity of many univeristy libraries, let alone school libraries of old. As one correspondent hinted, the next decade could see a big change in thinking over how students study, how teachers help them, where they do it and how they are examined.

The web tore through the old models for selling cars and houses, substituting a web marketplace for local newspaper ads and specialist magazines. It is busily destroying the local newspaper,and transforming Fleet Street from paper and ink to electronic display. The mobile phone and ipad have changed photography, supplanted many old hard wired landline phones, and aided people’s lives with sat nav and music services. The old recording industry has had to accept major change in how people listen to music. Just as the motor car made so many trades based on horses redundant or quaint relics of a former era, so the internet has uprooted business of many kinds and forced a radical rethink in what they are doing. Today it is making inroads in shopping, saying you do not have to have a shop to be a successful retailer.

It has fuelled multinational company communications, but it has also allowed lone individuals to go viral with a view or a criticism that can act as a strong antidote to government or corporate power. It has given governments new ways to spy and store data, new ways to tax and check up on us. It has also given taxpayers new ways to hit back, new ways to expose folly or corruption by government, new ways to fight back legally against the overweening power of the state. It seems to me to help the outsiders more than the insiders. This is confirmed by the way a country like China seeks to limit internet use, seeing unlimited internet as potentially disruptive.

Mr Obama was a great campaigner in 2008, showing how the web could be the base for a wide campaign that reached out to millions and kept them informed for a small outlay. One of the reasons many more people today are setting up their own business is the web gives them a cheap and rapid way of getting to market. You can set up a site announcing who you are and what you do. If it’s attractive and well written it can stand alongside giant company’s sites from day one. It gives the small guy a chance. It can be a very democratic technology. I am interested in your thoughts on how the web is transforming us, for good or ill.

The internet can play a leading role in the debate about public policy. It is helping refashion politics. The internet brings politics into your living room in a way you can manage. It gives you the right to hit back and to express your view. Sensible modern politicians take the internet seriously.