The nef blog

The past year may have been a great twelve months for the development of the new economics, but it also coincided with the loss of two figures who have been absolutely critical to its development. 

David Fleming died a year ago. Only a couple of weeks ago, we had the very sad news that we have also lost Richard Douthwaite. Now we hear that the great social enterprise pioneer John Pearce has died too.

Richard has been an extraordinary pioneer, from his work on the future of money to his development of the Irish new economics think-tank Feasta. 

But is for two books, in particular, that he will always be remembered. The Growth Illusion (1992) lifted the lid on the bizarre and destructive idea at the heart of the old economics – unlimited growth. Then Short Circuit (1996) described the emerging institutions and ideas of the new economics across the globe. 

nef was involved in the publication of Short Circuit and it provided a blueprint for our work for the next five years, including hugely influential books like Communities Count and Participation Works. 

I remember the book launch at our offices in Whitechapel, the first time I ever met Richard, it was absolutely packed and there was a sense abroad that some major milestone had been reached, and – as it turned out – it had.

John Pearce was a huge influence on nef in its early days, and later on our social audit team, but especially his pioneering work in Glasgow developing the idea of social enterprises. Social enterprises are now at the heart of the government's strategy for public services - not without flaws or teething problems, but with huge impact and the promise of a great deal more.

I have also now been sent the most extraordinary book by Richard’s contemporary David Fleming.  His book Lean Logic is huge and sprawling dictionary of not just of the new economics, but te business of winning the argument for it. 

It is witty, sprawling, witty, imaginative, wise and absolutely uncategorisable. Nobody has ever written a book quite like it, and it is an amazing testament to its author.

It’s been 3 months since the East London Green Jobs Alliance officially launched, amidst a fanfare of green hard hats and organic nibbles. We are a coalition of trade unions, NGOs, community based organisations and green businesses working together to create green and decent jobs for East London citizens. Our current mission is to create a ‘green jobs pipeline’ that will prepare young people who face barriers to employment for entry-level jobs in the green trades. By taking participants through a training programme that encompasses pre-employment skills, vocational skills, financial literacy, wraparound support services, environmental literacy, and an apprenticeship or work placement, we aim for this “jobs pipeline” to create a bridge into decent, well-paid work and a promising future career.

That’s our north star, and that’s where we’re heading. But the road is a little bumpy, and there are a few obstacles getting in our way. I’ve had loads of questions recently about what those obstacles are, especially from policy-minded people who are curious about what life is like ‘on the ground’. So I thought I’d share!

The only thing certain is uncertainty

Government is sending more mixed messages than your ex. One day they are the ‘greenest government ever’, the next they are slashing solar feed-in tariffs by 50%, threatening 4,000 businesses across the UK and 25,000 solar jobs.  All the conversations we had been having, and relationships we had been building with solar and renewables companies came to a grinding halt in November. Phone calls and emails went unanswered, as these companies rushed to do as much work as they could before the December 12^th deadline. What looked like a very promising market will now be making hundreds of people redundant in the new year.

One thing I have noticed on the ‘green jobs circuit’, is that no one knows who to talk to in government. There is no one person, or department, who has green jobs in their remit. Is it DECC? Is it DEFRA, or BIS? No one knows. If you do find someone to talk to, how do you know they will communicate with anyone else within government? You don’t.

Communities need support, and to support each other

I’ve heard that the domestic retrofitting policies that government have implemented, or are planning on implementing, need much more work and engagement with ‘hard to reach’ communities to ensure sufficient take-up. The plan is to encourage community groups to take on this front-line work, as they have more legitimacy and credibility within communities. Although this might be true, this vastly underestimates the scale of what needs to happen to ensure buy-in from these communities. Flyers need to be printed, doors must be knocked, miles walked, volunteers organised, awareness training delivered. For this to get going effectively, money needs to be set aside.

Communities must also foster a culture of information-sharing and support if we are to succeed in our mission. Too often, the sense of competition for funds and contracts amongst different bodies can encourage a culture of gate-keeping, which limits the potential of smaller programmes. That’s why I’m loving bringing different people together in the Alliance, to help us share opportunities and support each other in our work.

Gizza job!

In the current economic climate, these barriers will not be specific to the green sector – jobs are just scarce. Employers don’t feel they can guarantee enough work to see out a full apprenticeship placement, and short-term panic seems to be taking precedence over long-term strategy.

Whilst apprenticeships are often touted as the ideal route for getting at least some of the one million young people unemployed into the labour market, these opportunities are not as accessible to young people as commonly thought. As employers struggle to retain existing workers they are opting to train up the staff they have rather than take on a young apprentice. This is why over-25s now account for 40% of the total number of new apprentices while the growth in the number of under-19s starting apprenticeships has slowed, growing by 10% in the last academic year, from 17.5% the year before. Of course, it’s incredibly important for those already in careers to be able to advance and ‘green up’, but we need to try to ensure that, where possible, these apprenticeships create new jobs and that young people are best-placed to fill them.

The needs of training providers/colleges and those of employers can be totally at odds. I heard of one example where, after successfully placing students from an FE college into apprenticeships, the college had to record those successful placements as ‘drop-outs’ from the course when reporting back to the government. This resulted in their funding being cut. Crazy.

…what are we talking about again?

Lastly, we need to pin down what we’re talking about. We need a singular definition of what a ‘green job’ is to help job centres, careers advisors, teachers, and employers identify opportunities in the green sector, and opportunities for ‘greening up’ existing careers.  

So, that’s what I’ve come across. But whatever the barriers, at the end of the day there is much work to be done to make the transition to a green economy, and many eager to do it. We cannot afford to delay further. It’s time to knock down those walls… or maybe just insulate them. 

www.greenjobsalliance.org.uk

At a time when the level of employment is on the minds of politicians, and just having a job is on the mind of everyone else, the press, public and policy-makers have maintained a laser focus on the rate of unemployment. But there is another troubling dimension to the labour market in the UK, one that has long-term implications for British workers: the mismatch between the hours people work, and the hours they want to work.

At nef we may spend a lot of time thinking about employment rates (see our take on the drivers of current unemployment, and our Good Jobs Plan on improving not only the quantity but the quality of jobs in the UK). But we also look at working hours and how they are distributed across the economy. This was the focus of our publication 21 hours and is the subject of an event on the 11^th of January. It has also been the subject of some detailed digging we have done into the quarterly Labour Force Surveys for 2011 Q1. These show the extent to which overemployment (defined as people who want to work fewer hours, even for less pay) and underemployment (people who are ready and willing to work longer hours) are prevalent in the UK; in 2011 there are over two and a half million people overemployed in the UK and the same number underemployed.

More startling is the degree to which overemployment and underemployment are concentrated in certain groups. For example, overemployment is significantly concentrated amongst older workers, yet underemployment is a staggering 24% for those aged 16-19, and 16% for those aged 20-24.

Other axes of significant overemployment and underemployment are gender and occupation; Women are far more likely to suffer from overwork or underwork, for example. 

Although the redistribution of work is not as easy as simply giving the jobs of older people to young people, especially as older workers often have a great deal more experience than younger workers, the mismatch between actual and preferred working hours across the life cycle suggests that serious consideration needs to be given to how the economy distributes work over the life course, and between genders.

As nef argued in 21 hours, the transition to a society where work is distributed more equally will not be easy, whether we seek to make more equal work hours between the employed and unemployed, between men and women, or between young and old. That doesn’t mean it isn’t worth the effort. There are social, environmental and economic gains to be had, but there is some serious discussion and consideration that needs to happen before we can realise those gains. If you want to be part of that discussion, why not join us on January 11th?  

Arthur Miller wrote only one musical, as far as I am aware, and it was about the Wall Street Crash in 1929.  The American Clock was staged at the National Theatre in London shortly after the Black Monday share price collapse in 1987 and I saw it then.

I never forgot it.

One idea he plays with is that the collapse was caused by a man who kept his money in his shoes. “My God, you don’t believe in anything,” says a man who sees him extracting some cash from under his socks, and the unbelief spreads, with catastrophic consequences.

The idea of financial collapse as catastrophic loss of believe, rather like the loss of belief in fairies does for Tinkerbell in Peter Pan, is a powerful one. But there comes a point when the revival of belief has to be in something different.

We can’t any more believe in the bull market. Or the confidence of Goldman Sachs. Or the size of the bonus of the chief executive of Barclays. None of those carry any conviction any more as indicators of economic success. We have to believe in something else.

I suspect that what we need to believe in now is ourselves – our ability to create the institutions we need (local banks which are fit for the economy’s purpose would be a starter). 

Our ability if necessary to create the money we need. 

Our ability locally to rebuild sustainable economies, not hopelessly dependent on the largesse of the masters of the universe.

How do we rebuild that belief?  All we can do is get on and make it happen – and we all have a role to play. Sitting back and demanding that the government acts, but taking no action ourselves – about where we keep our money for example – is not an option. Certainly, I’m going to be shifting mine.

If we do that, we will have entered a new era – perhaps even a new civilisation. And that was the other message of The American Clock.

“There’s never been a country that hasn’t had a clock running on it,” he wrote. “So I keep asking myself – how long?”

Because, make no mistake, we are in the endtime of the current economic dispensation. The longer we cling to the institutions of the past, the worse it is going to be.

Already we are heading into a mirror of image of the Great Depression. Then as now, the main cause of economic unravelling was the way that banks were urged to hoard cash – encouraged by terrified central banks – for fear that that this loss of belief might bring them down.

That is itself the great threat that lies before us, the fear of fear itself. Or as Keynes put it – we are heading, if we are not very careful, towards a “perigrination in the catacombs, with a guttering candle”.

There are things that can be done – but it will involve breaking all the rules and reasserting our own belief in ourselves to do it. When that happens, we will have given birth to a new world. And the clock will start running again.

Originally posted at Left Foot Forward.

The Government has agreed to adopt the Independent Commission on Banking’s (ICB) reform proposals for how to make British banking safer and more competitive ‘in full’.

This is a relief, given the power of the banking lobby, but no cause for celebration or complacency.  We need to be quite clear about the limited scope and ambition of the Vickers’ commission. This was about how to make a dysfunctional banking system less likely to completely fall apart.

In other words, it was about propping up bad banking, not creating good banking.

It’s not even clear that the ICB’s proposals will make the UK financial system safer any time soon. The banks have been given at least another four years to implement the reforms, ring-fencing retail from investment banking activities.

That’s four more years of the tax-payer being on the hook whilst banks are free to carry on using funds from their retail deposit base to create exotic and risky financial instruments and speculative investments.

Given the financial crisis hit us in 2008, that’s almost an entire decade the UK financial sector has been given to sort itself out.

Contrast this with the pace of change expected of other extremely complicated and vitally important public institutions like the NHS, which have been forced to completely restructure and massively reduce costs in just a couple of years. Double standard is putting it mildly.

And even when the ring-fencing of retail banking does come in to force, we will still be saddled with banks that are ‘Too Big to Fail’, enjoying huge public subsidies. Despite the emergence of Metro, Virgin Money and most encouragingly, the sale of Lloyds branches to the Cooperative bank, the UK will still have one of the most concentrated retail banking sectors in the West, with all the risks that brings with it.

And this brings us to the idea of what good banking might look like.

Sadly Vickers didn’t seem to grasp the fundamental point about the modern monetary system: that banks’ create and allocate new purchasing power in the economy, through their lending. The government and the central bank are not permitted to do this because of our membership of the EU. So banks play an vital macroeconomic role, the aggregate of their lending decisions shaping the trajectory of our economy.

The fact that the majority of new money in the economy is created by banks for non-productive activity (financial speculation and mortgage finance) appears not to be of great importance to Vickers or the government.

Rather than focusing on how to prevent banks creating another enormous housing asset bubble, the report instead advocates having a bit more of a buffer in the hope things won’t be as bad next time around.

As the last two years and the failure of Project Merlin have demonstrated, it is not enough simply for the government to ask banks to start lending to the productive sector.

Structural change is required to get credit flowing to manufacturing, infrastructure and small and medium sized enterprises.

As in Germany and Switzerland we need to develop a local and regional banking infrastructure that is set up to lend and develop relationships with small and medium sized enterprises. Devolving the Royal Bank of Scotland into a set of city or county-owned public banks across the UK would be agreat start here.

Measures must also be taken to suppress lending that causes asset bubbles to develop. Today’s announcements about tougher mortgage regulation by the Financial Services Authority is a step in the right direction but more could and should be done.

The government needs to start worrying more about private debt levels and less about public debt, for it is the former that threatens the stability of our economy if recession kicks in again.

More direct interventions should be considered, including for example differential leverage ratios for different sectors as suggested by Adair Turner. Since Vickers has failed to address this issue, we must hope the Treasury and the new Financial Policy Committee take up the challenge.

Originally posted at Comment is Free.

The chancellor, George Osborne, responding to the Vickers report, seems to think it's "mission accomplished" on banking. But the report's proposed reforms don't address the inherent instability of the banking system.

The main lesson of the financial crisis, illustrated in spectacular fashion, was that banks had been given too much regulatory freedom, profiting at the expense of taxpayers and customers alike. Politicians, economists and journalists lined up to agree that robust regulation was necessary to stabilise the economy and ensure the mistakes of the past could not be repeated. Three years and after pledging approximately £1tn in support of the sector, we are no closer to stabilising the financial system.

The Independent Commission on Banking was launched last year with the promise it would address systemic risk in the banking sector. However, all that was proposed in the final Vickers report was the ringfencing of retail banking away from investment banking activities, and banks being asked to hold more capital aside in case of trouble. While both of these initiatives should be welcomed, they do not address what caused the scale of the banking crisis.

The problem remains the same as it did in 2008, a banking industry that is too big to fail. It is a problem that was acknowledged by Vince Cable before he became the business secretary.

In the last 25 years we have allowed banks to balloon in size. Until the 1970s, banks' assets as a percentage of UK GDP remained steady at approximately 50%. By 2006, after decades of deregulation, banks' assets as a percentage of UK GDP were more than 500%. These large interconnected institutions dwarf the rest of the UK's economic activity, and when they are threatened we have no option but to bail them out.

Given this reality, even outright separation between retail and investment banking – which is not what the government has proposed – would not address the inherent instability in the financial system. Lehman Brothers didn't have a single retail bank, but its collapse sent shockwaves through the global economy because of the size and reach of its operations.

So Britain's bloated mega-banks will remain fundamentally unaltered despite the continued threat they pose to the economy. And taxpayers will continue to subsidise them, as government guarantees enable them to access finance at a significantly lower rate than would otherwise be possible. No other industry enjoys such a subsidy, which nef's research estimates equated to £46bn last year. And the Vickers commission itself admits ringfencing will only reduce, and not eliminate, this "too-big-to-fail" subsidy.

It isn't the only support the banks receive from the public. Taxpayers are now paying £5bn per year in on-going finance charges on funds used to bail out banks. And that's without factoring the corporation tax cuts announced in Osborne's autumn statement, which are likely to cancel out revenue brought in by the government's bank levy.

The £7bn the banking industry estimates will be the cost of ringfencing is peanuts in comparison to these figures.

The media is unhelpfully reporting that the commission's proposals are the most radical reforms the banking sector has seen in the past century. But this is only a reflection of the excessive freedoms we have granted banks in the past; it does not mean that our problems are now solved.

The commission's recommendations, welcomed by the government, opposition and the banking industry, make plenty of political sense but very little economic sense. It is time to bring an end to the bankers' private welfare state.