Monthly Archives: July 2012

A bastion of privilege?

How quickly they forget!

It’s less than a year since most of our biggest retailers and dairy processors got stung with big fines for fixing the market for milk.  They had manipulated the market to overpay producers and overcharge consumers.  Now they’re doing exactly the same again, as the militant wing of the producers lobby applies pressure to pay them above market rates!

The underlying problem appears to be that most of the media and government always take the producers side.  Indeed, our supermarkets stand more-or-less permanently accused of screwing their suppliers, and have faced one price-fixing investigation after another.  So it’s all the more ironic that the only actual wrongdoing happened when they gave in to pressure from the farming lobby (which included media and indeed government of the day) and overpaid in 2002/3.

So far this time round it looks a lot like a repeat.  Militant farmers blockade someone and issue press releases “we’re being paid less than the cost of production”.  Media parrot the press releases without any questions of the kind they’d ask any normal business (“can’t you reduce those production costs?  For example, keep that range rover a second year before replacing it?”[1]).  Indeed, media go even further: sometime they positively incite further “direct action”, for example in an interview with one of the militants on the PM programme on Saturday.  If you want to listen, it’s near the beginning, but this link is probably only available for a few days now.

Why does this farmers lobby (unlike most trade unions making similar demands) always have the media so firmly on-side?  Could it be because of the association of farmers with landowners: the old aristocracy whose privilege cannot be questioned?  If upstart newcomers benefit, that’s by-the-by, and as for tenant farmers (the ones who really aren’t rich), higher prices will just enable their landlords to charge higher rents, and vice versa, in the medium term.

Who will get fined this time round?  Apart from the long-suffering consumer, of course.  Fortunately I’m a lot richer than I was in 2002/3: milk is one of many things I can easily afford now but had to do without most of the time back then.

[1] Of course not every farmer has a new range rover every year: most of them are busy getting on with the job.  But it’s precisely the kind of production cost that enables them to ‘prove’ they’re making a loss.

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Can it really be so hard?

Latest news: South London NHS trust declared bankrupt.  Unaffordable PFI liabilities blamed.

Setting aside the apportionment of blame (PFI liabilities were presumably one ingredient in a toxic mix), PFI liabilities more widely are being reported as a huge proportion of UK off-balance-sheet public sector debt, and thus a great pillar of the overall debt burden.  How has it come to this?

The original rationale for PFI was a good one.  Put the risk of cost overruns with the contractor, and it takes away the race-to-the-bottom where the contract goes to whoever can put in the most unrealistically-low bid, and raise it only when the contract is secured.  The idea that contracts inevitably go ten or twenty (even 100 in murkier corners) times over budget really shouldn’t be the norm.  Indeed, shouldn’t even happen in politically-driven vanity projects like the olympics, but that’s clearly too much to hope.

Trouble is, it became a vehicle for magic money: a manifestation for our times of Mephistopheles’ credit bubble[1].  Public sector commissions new projects, but hides the cost off-balance-sheet.  Current incumbents build empires: bask in the glory of shiny new hospital (or whatever).  By the time the emperor’s wardrobe malfunction can no longer be hidden, it can be made someone else’s problem.  If indeed the idea of payment ever crossed their mind in the first place.

Now, someone tell me what’s wrong with a simple solution: at the same time as a PFI contract is signed, issue a bond to cover the cost over the lifetime of the project?  Such a simple act of keeping the liabilities on-balance-sheet could prevent abuse, while retaining the genuinely useful aspect of the PFI concept.  Of course the financial wizards won’t like it (they lose a fun and profitable toy), nor will politicians and civil servants deprived of their ability to raid the future without telling the beancounters.  So a good outcome all round: just need to rewind that time machine a few years.

[1] Googling the story of Mephistopheles’ brilliant boom-and-bust based on credit notes for as-yet-undiscovered mineral riches that, when discovered, would rightly be claimed by the Emperor, finds an interesting essay.  One that not only tells the story, but claims that this part of the Faust story has been more-or-less systematically dropped since 1945, and so is not widely known.  Interesting insight or nutjob conspiracy theory?  Maybe both?  Here’s the story: read it and judge.