Category Archives: Public Sector

Public sector management and including all not for profit organisations

The Cut – Recovery Dilemma

The dilemmas facing the new British government, though not them alone, in dealing with the biggest ever peace-time indebtedness, are how much of public expenditure to cut, what to cut and how to cut it and above all when to start. Do too little too late and “the markets” won’t like it and that would bring untold disasters. Do too much too soon and we’ll be in for a double dip recession. And then “the markets” would forsake us for good and all. We need to reduce short term indebtedness before its costs bring the recovery to a shuddering halt. That mustn’t be allowed to happen since its only a recovered economy that will eventually repay the long term debt and finally get us out of this mess.

Well, where are the very clever economists who invented all this jargon about double dip recessions and “the markets”? It’s exactly the sort of conundrum their sophisticated mathematical models should be able to solve. They have the computational power at their disposal; why are they not doing their sums and coming up with the answers?

Media commentators are continually condemning politicians of all parties for not being straight up with us, telling us the bad news about what they intend to cut. But, till now, politicians have probably been 100% honest on this score if nothing else. The simple fact was they didn’t know what they were going to cut. Because the economists hadn’t come up with any coherent suggestions. Because they didn’t know either. Because their fancy mathematical models didn’t work any better on that, than they did on credit default swaps, or eliminating the risk on sub prime mortgages, etc etc etc.

Maybe it’s time for people controlling the real world – who Keynes referred to as ‘the madmen in authority’ – to ignore theoretical economists, and apply the lessons of experience and common sense instead.

Fat Cat Corruption

It was Peter Drucker who invented the 20 to 1 ratio, suggesting top executives wouldn’t be able to manage their firms effectively if they paid themselves more than 20 times their lowest paid employees, because of the ‘hatred’ and ‘contempt’ in which they would be held. Today, top executives in both public and private sectors pay themselves vastly more than 20 times, simply because they can, authorised by compliant remuneration committees of fellow fat cats.

The phenomenon results from what Bruno Frey referred to as the “crowding out” effects of extrinsic monetary rewards, the intrinsic motivations arising from the satisfaction of doing an interesting and hugely worthwhile job, being “crowded out” by the monetary rewards being pressed upon them or placed within their grasp. (The “socially useless” financial sector is excluded from these considerations – that’s another story!)

Executives in the real economy, and the public sector, may well have started out with intrinsic motivations to leave the world a better place for their brief presence in it. But these higher aims are “crowded out” in what becomes a mindless chase for more money.

But the person inside inevitably judges what others would think if they saw an act of theft, whether it’s picking up a £10 note on the street and pocketing it, or taking a multi-million pound salary. As Adam Smith indicated, it matters what others think; they would prefer others to think well, rather than ill, of them. Only when they know others think irredeemably ill, do they no longer care how their acts impact. Then there is nothing to lose, so they themselves become lost. They surround themselves with sycophants and hangers on, who insulate them from the hatred and contempt of their fellow humans. It’s a pity the sycophants include government ministers and politicans, for example George Osborne and Peter Mandelson notoriously meeting on a fat cat’s yacht a couple of years ago.

The Political Appeal of Co-ops and Mutuals

George Osborne announced the Conservatives proposal to mutualise and co-op the public sector, describing it as the ‘biggest social revolution since Thatcher sold council houses’. But their proposal just shows how little they understand the essence of those movements. Mutuals and co-ops operate within the for-profit sectors but instead of paying surpluses over to external shareholders they pay some to their members and accumulate the rest within the business. That’s the whole point. That was how the great mutual financial institutions and building societies got to be so big and so successful. The rape and destruction of so many, almost including the Co-op itself, was sanctioned and encouraged by the Thatcher government.

So how would mutuals and co-ops operate in the public sector with no surplus to distribute and accumulate? What would be the point? Well, George Osborne says, they would be able to work without the central controlling bureaucracy. So, was he saying there would be no central regulation or control? Well, not quite that, Osborne admitted, there would still have to be performance standards. So what did this social revolution amount to, other than confusion? Well, it was a reply to Gordon Brown’s earlier announcement that mutualism and co-ops would be at the centre of Labour’s election manifesto. But not a very convincing reply. No more convincing, in fact, than Brown’s own commitment. It would be rather better if politicians thought through their policies before deciding on the accompanying sound-bite.

The Case for Monopoly

Keynes said he could see no reason why a government should become involved in owning a railway. However, the result of privatizing British Rail and trying to open it to competition, suggests Keynes may have been short-sighted. Monopoly might be a bad thing when exploited by some profit maximising economist, but the case against is by no means shown to be universally true.

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The Conservatives' Commitment to Mutualism and Co-operatives

This space is not habitually given to expressing party political views, but occasionally it is unavoidable. Political parties inevitably, from time to time, address head on, topics which are of prime concern here. And sometimes their approach is either so right, or so wrong, that comment is necessary if these postings are not to appear totally disconnected from the real world. Today is such an occasion.

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The Bombardier Fiasco

The announcement of around 1400 job losses at the Bombardier rail works in Derby signals the beginning of the end-of-life stage for another great British manufacturing industry, resulting more or less entirely from the incompetence and stupidity of the ‘madmen in authority’. Their latest incarnation, Transport Secretary Philip Hammond, was interviewed this morning on BBC Radio 4’s Today programme to explain why it was ‘correct’ to award the £1.4 billion Thameslink contract to the German company, Siemens, rather than to Bombardier, UK’s last rail producer. His explanation was based on his belief in ‘free trade and open markets’, although, to do him credit, he had noticed that ‘the Germans award contracts for trains to German builders’, and ‘the French routinely award contracts for trains to French train builders’. He described their approach as looking ‘more strategically at the support of the domestic supply chain’. Well what does he think the British government’s role is supposed to be? Is it to be looking after strategic British interests, or to promote an outmoded ideology that has proved time and again to be disastrous, in particular, to British manufacturing? Well, he and Vince Cable have written a letter about it to the Prime Minister! Good for them!
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