Breaking up the UK – everyone’s a loser

The rest of the world thinks we are mad, as well they might. Viewed from outside the UK, the minor differences which separate the Scots from the rest of us don’t look like that big a deal. Why would you want to break up a prestigious well functioning state with a good credit rating on a whim?

New York Times economist Paul Krugman has written several posts in the last week, starting with Scots, What the Heck? and the most recent Maastricht in a Kilt

It would be one thing to make the sober case that independence is worth it despite the economic costs and risks; but the SNP has been claiming that there are no costs and risks, which is just wrong.

He links to a strong post from Simon Wren-Lewis which accuses the SNP of “Fooling yourselves and deceiving others.”

Scotland’s fiscal position would be worse as a result of leaving the UK for two main reasons. First, demographic trends are less favourable. Second, revenues from the North Sea are expected to decline. This tells us that under current policies Scotland would be getting an increasingly good deal out of being part of the UK.

He goes on:

Is this a knock down argument in favour of voting No. Of course not: there is nothing wrong in making a short term economic sacrifice for the hope of longer term benefits or for political goals. But that is not the SNP’s case, and it is not what they are telling the Scottish people. Is this deception deliberate? I suspect it is more the delusions of people who want something so much they cast aside all doubts and problems.

And concludes:

I have no political skin in this game: a certain affection for the concept of the union, but nothing strong enough to make me even tempted to distort my macroeconomics in its favour. If Scotland wants to make a short term economic sacrifice in the hope of longer term gains and political freedom that is their choice. But they should make that choice knowing what it is, and not be deceived into believing that these costs do not exist.

He’s right about the costs to Scotland but I’m not sure he’s right about not having skin in the game. I reckon we’ve all got skin in the game. Those of us in the rest of the UK certainly have but so have people in other countries. None of them want to see a weakened economic and military partner. The UK, for all its faults, is one of the countries that helps to bring stability to the world. That’s why so many foreign governments are getting worried about the prospect of a Yes vote.

Alex Salmond is, no doubt, glad that the SNP’s original plan to hold the referendum in 2010 did not come to pass. A vote so soon after the financial crisis would have been held in an atmosphere of gloom when people were less inclined to take risks. But things are looking better now, as economies around the world have started to grow again. The danger seems to have passed.

Look a bit more closely, though, and it hasn’t. We are still in the post-2008 crisis. It is becoming clear that this recovery is like no other post recession period we have ever seen. The usual rebound, with a couple of 4 percent growth years to make up for lost time, doesn’t look likely to happen. The OBR is forecasting real annual GDP growth rates of around 2.5 percent for the rest of this decade. We called that sort of growth a slowdown in 2002. Now we’re calling it a recovery.

Some may blame the Tories for this and say that it strengthens the case for independence. But putting all the blame for the slow recovery on the Coalition is as silly as putting all the blame for the rise in debt on Labour. To an extent, the same problem is facing most developed economies and certainly all of the major ones. We look with envy at America’s growth rate yet even this is weak by the standards of previous recoveries. US growth is slowing down and the Eurozone’s has stalled. Even the Swiss are in trouble.

Yesterday, the OECD cut its global growth forecasts. As the FT reported:

Fears of disruption following a Scottish vote for independence and intensifying conflicts in the Middle East and Ukraine have damaged prospects for the world economy, the Organisation for Economic Co-operation and Development said on Monday.

In an update to economic forecasts published in May, it said the outlook had darkened for 2014 and 2015 for almost all the world’s large economies, partly as a result of one-off hits to growth early this year and partly stemming from geopolitical risks.

This is not like the post-recession booms we had in the last half of the twentieth century. This century’s version is built on shakier foundations. Last week, Larry Summers repeated his secular stagnation warning (see previous post). America, he argued, is now in a period of much lower economic growth and radical government action will be needed, just to keep it at around 2 percent over the next decade.

If that’s true for the US, something similar is probably true in Europe, where what Summers called “the brutal demographics of an ageing population” are that much worse. As this chart from the Resolution Foundation shows, it looks unlikely that the UK will get back to trend growth, as we did in previous recessions. Or, to put it another way, trend growth is now well below the postwar 2.6 percent.

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You could probably draw a similar chart for most developed economies. It is probable that most have experienced a permanent loss of GDP. All of us are now in a period of much lower economic growth than we have been used to. Quite how much lower is anybody’s guess, though hopefully it won’t be as low as some people think. What we are seeing now, though, may be as good as this recovery is going to get.

Since the Second World War, we have built a whole society on the assumption that growth would continue at somewhere between 2.5 – 3 percent. All our assumptions about living standards, what the state should provide and how much better off the next generation will be than the last may turn out to be wrong. Those of us who assumed the postwar world would go on forever are in for a shock.

It’s a sign of just how fragile the global recovery is that the OECD has cited the Scottish referendum as one of the factors behind the slowdown. Warning that it “would take many years to unlink ties between Scotland and the rest of the UK”, the OECD described Scottish independence as a “geopolitical risk”. This not just an issue for Scotland or the UK. A lot of other countries have skin in the game too.

All developed economies are facing at least a decade of weak growth, ageing populations and relatively high debt. Despite all the politicians’ bluster, most will have to run deficits at some point. As this paper from NIESR yesterday reiterated, the borrowing costs of both Scotland and the rest of the UK would almost certainly go up after independence, whichever way the existing national debt is allocated. That means all of us paying more taxes to fund debt repayments. I can’t see how that is good for anyone except the lenders.

I haven’t the space to go into the military implications or the impact on public services but both would be complex and damaging. From whatever angle you look at it, Scottish independence leaves the entire country worse off. We are all in the same leaky boat. The idea that some people can take their bit of the boat somewhere else and everything will be fine is a fantasy.

As they look back at the 21st century, historians will probably wonder why, when they should have been preparing for a period of slow growth, rapid ageing and debt hangover, the people of the UK decided instead to spend precious time and resources smashing up one of the most secure and propserous countries in the world. At a point when the global economic recovery is still so fragile, breaking up the Union is not good for Scotland, not good for the UK and not good for the rest of the world either. As the FT said last week, there must be a better way than this.

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The brutal maths of public spending

More on the OBR’s Crisis and consolidation in the public finances report. (See yesterday’s post.) Chapter 6 contains lots of information and commentary on the government’s proposed deficit reduction strategy.

The OBR’s charts neatly sum up a lot of what I’ve been trying to say about the outlook for public spending. Debt interest is set to rise and social security costs to fall very slowly, so most of the deficit reduction has to come from cuts to public service spending.

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The government is not planning to raise much additional tax so, to get the public finances back to where they were last time the country had a surplus, at the beginning of the century, it must offset the increased welfare and debt interest payments with a big cut to capital (CDEL) and day-to-day (RDEL) public service spending.

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As the report comments:

Interestingly, the levels of total receipts and total spending that we forecast for 2018-19 are very similar to those recorded in 2001-02 at around 38 per cent of GDP. So on current Government policy we are not expecting the UK to become a significantly higher spending and higher taxing, or lower spending and lower taxing, economy in 2018-19 than we were the last time the budget was broadly in balance 14 years ago. Receipts are expected to be just 0.6 per cent of GDP higher than in 2001-02 at 38.1 per cent of GDP and spending just 0.1 per cent of GDP higher at 37.8 per cent of GDP.

So in one sense, the state gets back to roughly the size it was when Tony Blair went into his second term. The 2018 state will look very different from the 2002 one though.

[T]his similarity in the aggregates masks a big change in the composition of spending. We forecast that in 2018-19 the Government will be spending around 4 per cent of GDP (£66 billion a year in today’s terms) less on public services and capital spending than Labour did in 2001-02 and around the same amount more on welfare, debt interest and other annually managed expenditure.

Because there is more money to find for welfare and debt interest now, that 38 percent of GDP doesn’t leave us with anywhere near as much to spend on public services. Without tax increases, reducing the deficit to 2002 levels can’t be done without big cuts to public services.

This next chart illustrates the brutal arithmetic of public spending. Overall spending goes up in cash terms and the real terms cut of 4 percent looks quite small. But by the time welfare, debt interest and other AME spending have taken their slices, real terms public service spending (Total DEL) falls by 23 percent. Add in the effects of population change and per capita public service spending drops by 27.5 percent.

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I was quite pleased when I saw this because the figures are not that far off the ones I came up with when I did a back-of-the-fag-packet calculation 5 months ago. I wasn’t scaremongering. The numbers really are that big.

On top of this is the stated aim of protecting the budgets for NHS, schools and overseas aid. This means that the amount left for everything else would be even less. The OBR estimates that cuts to the rest of public service spending would be around 36 percent in real terms, which is similar to the IFS figure. It doesn’t say how this would translate into a per capita amount. Someone with more time than I have at the moment can work that out but it will be a large number.

At this point the OBR’s remit stops. Its job is to look at the government’s spending plans and explain what the fiscal implications are. Whether or not these plans are achievable is for other people to judge. Rightly, it doesn’t go into discussions about how a government spending 28 percent less per person on public services will cope when more of those people are elderly and when the demands on services are that much greater. It is not the OBR’s job to comment on the implications of these plans for individual public services either. For example, whether the protected budget will be enough to stop the NHS from running out of money before the end of the decade is someone else’s call.

So that article in the Daily Mail which claimed that the OBR has ‘praised’ the government’s spending plans is utter garbage. It didn’t say Britain is on track to deliver these savings, as the Mail claimed. It simply said that, if the savings are achieved, based on what else we think will happen to the economy, these will be the results. To have endorsed or criticised the plans would be well beyond the OBR’s brief.

In its conclusion, the OBR says (my emphasis):

If our central forecast proved to be correct, this would deliver the first budget surplus for 18 years and would represent one of the largest deficit reductions among advanced economies in the post-war period.

In other words, since the creation of the modern welfare state, not many people have tried this. These are huge spending cuts, both by historical and international standards.

The OBR has provided the information, then, but it’s up to politicians, public service providers and others to interpret it and assess the implications. Most of those who have looked at the figures in any detail doubt that a per capita 28 percent reduction in public service spending is achievable. At least, not without the state withdrawing from the provision of some services or charging for them at the point of use.

Everyone else, including most of our politicians, is keeping quiet.

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Who saw the crash coming?

It was Mark Radcliffe (I think) who said of the Sex Pistols famous gig at Manchester’s Lesser Free Trade Hall, if everybody who says they were there really was there, they’d have had to hold it at Maine Road.

People like to say they were in the know and, more importantly, that they saw things changing before everyone else did. This applies as much to politics and economics as to music and fashion. Nowadays, it’s hard to find anyone who was in favour of invading Iraq, even though the opinion polls at the time said that the majority of people were. I wouldn’t be surprised if some of the people who were gung-ho for going in will now say that they marched against the war. Some might even have convinced themselves that they did.

And these days there’s no shortage of people who saw the recession coming. In newspapers, on blogs, in the pub and on Twitter, it’s not hard to find people who ‘knew it was going to happen all along’. After all, you only have to look at the signs. Bleedin’ obvious, wasn’t it?

These experts seem to have been remarkably quiet before 2009, though. From what I remember, not many people were talking about the prospect of a crash in the early 2000s. Most people assumed there would be a slowdown at some point but few predicted a severe recession. I recall a pub conversation with some City comp & ben chaps at the fag end of the 90s in which, after several pints, we agreed that ‘things couldn’t go on like this’. But things did. The economy kept growing, investment banking continued to boom and the sort of bonuses we thought were crazy in 1999 looked like beer money a few years later. The dot com crash caused a slowdown but the sky didn’t fall in. It’s a sign of the times that, what we called a mini recession back then, growth rates of 2.3 percent, we now call a recovery.

Earlier this week, I went to the launch of the OBR’s report Crisis and consolidation in the public financesIt’s a fascinating document and one which we’ll see quoted by all political parties in the run up to the election. I’ll write about some of the projections later but what’s new in this paper is the publication of figures from before the financial crisis.

Ten years ago, I couldn’t have written a blog like this because most of the information wasn’t in the public domain. It’s only really in the last five years or so that so much economic data has been freely accessible. The OBR’s report gives us some of the history of government spending before the financial crisis. I’m not getting into it today but at least now we can have a more informed discussion about whether, and by how much, it was ‘all Labour’s fault’.

What the report does show, though, is that even those who were supposed to have been in the know didn’t see the recession coming. Some forecasters thought the government was being over-optimistic about growth and tax receipts but this suggested the deficit was a bit on the high side, rather than heading for disaster. The tone of this quote from the OECD reflects the spirit of the time:

“In another four European Union countries (Italy, the United Kingdom, Greece and France) the projected deficit, while remaining below 3 per cent of GDP, is well beyond the safe budget margins which might reasonably be expected to ensure that the 3 per cent deficit limit would be respected in the face of a major cyclical downturn.” (OECD Economic Outlook, June 2007)

It’s saying that, if there’s a downturn, there’s a chance the UK’s deficit might go above 3 percent of GDP. As it turned out, two years later it was at 11 percent.

This chart shows what the OECD now thinks the UK’s structural deficit was in 2007 compared with what it said at the time.

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So they now reckon it was about twice as bad as they told the government in 2007. Then again, look what they said about Greece.

Were our financial institutions any the wiser? Here’s what they told the Treasury in the run up to the 2008 budget.

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A bit of a slow down, then. Growth rates a bit below those we have been used to recently. Perhaps another period similar to 2001 and 2002. Six months after the collapse of Northern Rock, even the most pessimistic didn’t predict anything close to what actually happened. As the OBR says:

Other official bodies were also relatively sanguine about the financial and economic outlook. The Bank of England said in its May 2008 Financial Stability Report:

“The most likely outcome for financial stability in the United Kingdom in the period ahead is that conditions improve gradually as measures are taken.”

And the International Monetary Fund said in its April 2008 World Economic Outlook:

“In the United Kingdom, growth is forecast to slow to 1.6 percent in 2008, as the lagged effects of the 2007 monetary tightening, a turning in the house price cycle, and the financial turbulence are projected to slow activity, despite monetary policy easing. Only a moderate recovery is foreseen for 2009.”

The IMF predicted a mild recession in the United States, with the rest of the G7 avoiding recession.

Another six months on, Alistair Darling made what looked like a throwaway remark in a Guardian Weekend interview.

The economic times we are facing “are arguably the worst they’ve been in 60 years,” he says bluntly. “And I think it’s going to be more profound and long-lasting than people thought.”

It was the late summer bank holiday. I remember reading it up at my parents’ house and saying, “Are you sure Alistair? What, worse than anything since the war? Come on…” By the time I got back to work, I’d forgotten about it.

I wasn’t the only one who was not convinced, though John Band’s “poo on a stick” piece dismissed the Chancellor’s comments with the most aplomb. Even among the government’s opponents, the reaction was curiously muted. Most of the reporting at the time seemed to focus on the reaction of Gordon Brown and whether the government was split, rather than on whether or not Alistair Darling was right.

A couple of weeks later I was in Canary Wharf when Lehman Brothers collapsed. That was when things started looking serious, though some people were still cracking jokes about it. This Telegraph timeline reminds us just how quickly things went bad afterwards. Just over half a year separates what now look like ridiculously optimistic growth forecasts from the catastrophe that followed. The fall was rapid and, for the most part, unforeseen.

Hindsight, though, is a wonderful thing. Very few people saw the recession coming and, even those who did, had no idea it would be so severe. Even a few months before the world’s economies tanked, experts were still talking about a slowdown and maybe the odd quarter of zero growth. The OBR’s report reminds us of the prevailing mood before the crash and that the disagreements were, on the whole, about the degree of slowdown, rather than whether or not there would be a recession.

What we got instead was a series of events that blew holes in all the major economies and from which we have still not yet recovered. The world changed in 2008, it’s just that very few of us realised it at the time.

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Are we really about to split up our country?

Suddenly, London has woken up to the prospect of a Yes vote in the Scottish referendum. Its two centres, the City and Westminster, are both in a panic. Even opinion poll guru Anthony Wells, who, until last week, was convinced the No camp would win, is now not so sure.

There is a serious chance, then, that we could be about to witness one of the most catastrophic acts of self-sabotage in our nation’s history.

This country faces some difficult challenges over the next decade or so. We are still reeling from a severe economic thumping during which one of our most profitable industries collapsed and from which the path to recovery still looks unclear. Whoever wins the election next year faces the difficult task of balancing fiscal deficit reduction with tax increases and spending cuts. Wages are stagnating, tax receipts are disappointing and the social security bill remains stubbornly high. Another £33bn a year, or possibly more, in extra borrowing or taxes has to be found just to prevent the cuts to public services from getting any worse. Even then, the NHS will start to run out of money by the end of the decade. Politicians avoid talking about this because the size of the problem is huge and they don’t want to scare the voters.

However, there seem to be some people in Scotland who think they can walk away from all this. One of my posts was quoted recently by a Yes campaigner as an argument for independence, the implication being that these problems would magically disappear if Scotland became independent.

It’s rubbish, of course. These are problems that face all developed economies. As Edward Hugh said in his wonderful Last Days of Pompeii post a couple of years ago, we have a generalised debt, demographics and growth crisis:

The point to get is that it isn’t simply the level of debt that is the problem, it is the level of debt in the context of the implicit liabilities (in terms of health and pensions) which such population ageing represents, and the reduced growth outlook that having declining and ageing populations represents.

Europe’s leaders are essentially in denial on the extent of this problem, and are putting all their eggs in the “structural reforms to raise trend growth” basket.

The next few decades will see an unprecedented ageing of populations and, in all likelihood, much lower rates of economic growth. We don’t know how low but it will almost certainly be lower than that which we got used to in the last half of the twentieth century. The financial crisis has made this worse, leaving all developed economies with much higher levels of public debt that they had anticipated.

In some form, most developed economies face the 2015 dilemma. The numbers are different but the combined pressures are the same.

Public Spending Venn 2015 - Plain-3

Scotland’s position is particularly bad, as Tomas Hirst explained last week.

Public sector net borrowing, the amount the country has to borrow on top of what it raises in tax revenues, is projected to leap from around 4% in a decade to over 10% by the middle of the century. This would send public debt rocketing up to 200% of GDP.

That’s a larger hole than the one Greece is in.

As the IFS said, Scotland’s ageing problems are likely to be worse than the rest of the UK’s and its tax revenues weaker. Diminishing North Sea oil would not make up for that. As a result, Scotland would need an even greater level of austerity, or else it would rack up an even larger debt.


The IFS conclusion:

Our model suggests that public sector debt across the UK will decline from 2017–18 until the end of the 2030s. However, all but one of the scenarios we have presented for Scotland suggest that Scottish debt would rise as a share of national income every year, in the absence of further policy action. The fiscal pressures facing an independent Scotland would therefore be more immediately pressing than those facing the UK as a whole.

That’s calm, measured think-tank speak for ‘your economy will most likely be a basket case’.

But what if an independent Scotland were to simply walk away from its share of the national debt, as some in the Yes camp have suggested? Wouldn’t a debt-free country be in a better position? The general consensus of opinion (and we don’t really know because no-one has tried this recently) is that such a move would be seen as a default and lead to Scotland facing much higher borrowing costs. A country running a deficit with high interest rates doesn’t take long to build up a significant public debt, even from a standing start.

As Tomas says, Scotland has similar structural problems to the wider UK, only worse, so it could end up needing to implement more severe austerity measures than the rest of the country. Far from turning its back on the 2015 dilemma, Scotland could end up with one that is even worse.

What’s this got to do with the rest of us? Wouldn’t it just be a problem for Scotland?

We should be so lucky. The UK’s recovery is very fragile for a number of reasons. The Eurozone’s recovery has ground to a halt. The US economy looks stronger but even there, things look a little shaky. Last week, Goldman Sachs warned of severe consequences for the UK as a whole in the event of a Yes vote. Already, Sterling and share prices are taking a hammering.

It’s worse still, though, because untangling our 300-year-old state is likely to take up much of the next parliament’s business. The SNP’s March 2016 target date has been called risible and preposterous, not by politicians but by academics and former civil servants. The best analogy I have heard was from a senior Scottish soldier interviewed on Radio 4. “You can’t unscramble a scrambled egg,” he said. And he was just talking about the military aspects.

It will be just as much of a headache for businesses. A friend of mine who works for a financial services company reckons that all the money they have earmarked for investment over the next 3 years will have to be diverted into re-organising their company to operate in two different countries, one inside and one outside the EU (maybe) and with two different currencies (maybe). It’s no wonder shares in Lloyds and RBS have taken a hit. Remember, these are banks in which the state owns a substantial share. In one sense, then, you’ve already taken a hit from a potential Yes vote.

Financial markets don’t like instability. The amount it costs governments to borrow has as much to do with political stability as its levels of debt. One of the reasons the UK has such low borrowing costs is because it is a long-established state. It’s the dividend we get for a relatively high level of political and social cohesion. And it seems we are just about to piss that all away. Borrowing costs are already edging up. Not by much but it’s a sign of what’s to come.

The most important task for any government during the rest of this decade is to come up with a plan for dealing with the considerable challenges we face. What will be the consequences of an ageing population? What can be done about wage stagnation? How will we manage increasing public service demands when there is less cash available to spend on them. What will be the implications of a much lower growth rate than the one we got used to during the last half of the twentieth century?

At least, those ought to be the priorities. Instead, though, most of the government’s time and energy will be spent trying to unscramble the egg. That will take at least half of the next parliament, if not longer. As I, and others, keep saying, the task of the rest of this decade should be designing a state that is able to cope with the next one. Instead, it looks as though we will spend most of it dismantling the state, rather than redesigning it. That won’t solve the problem though. It will just put it off until a later date. By the time it’s all sorted out, the pressures on both the UK and the new Scottish state will be that much more severe. The 2015 dilemma will become the 2018 dilemma. And it will be that bit worse, for both countries.

This isn’t about England versus Scotland. It’s about how we will cope with the next few decades. A stable and united country has a far better chance of managing the challenge.

If Scotland does become an independent country, the problems we face won’t go away. They will just be split between two states instead of being shared by one. And they’ll be that bit worse for being left to fester for another few years. Scotland might have enjoyed a post-independence party but we’ll all have the hangover afterwards. When you consider what we are up against, splitting up our state is sheer folly and self-indulgence. In the face of the most severe economic challenges we have faced for generations, we are about to break up one of the world’s most stable and prosperous states. It’s absolute madness!

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The Old Rectory Syndrome

The more data we crunch about the self-employed, the more complex the picture becomes.

Ben Dellot has compared the earnings and assets of the self-employed. He found that households totally reliant on self-employment earnings are far more likely to have below average incomes than those where at least one person in the household is an employee.

This is true across all age groups, though particularly so among the under 25s.

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This is consistent with what we know about self-employed incomes falling further and faster than those of employees.

But, despite their low levels of income, the self-employed are more likely to own their homes outright than those in other forms of employment.

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The data on property wealth is slightly older than that on income. Some of this might have changed after the recent rise in self-employment. Nevertheless, the differences are of the scale that suggest the pattern is probably still similar.

We already know that the distribution of income among the self-employed is much wider than it is for employees. A lot of the self-employed are poor and a much smaller number are exceedingly rich. This has been the case for years and is true in most developed countries. As the OECD noted, when you add the self-employed to the calculation, the Gini coefficient shoots up.

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That said, even though there are huge inequalities among the self-employed, the data suggest that there is an overlap between those with high property wealth and low income. If around 35 percent of self-employed only households own their houses outright and a similar percentage are earning below average incomes, it’s probable that some are doing both. There is a subset of the self-employed who are, as Ben says, cash-poor and asset-rich.

There is almost certainly an age dimension to this. Michael points out that, when you look at the number of people owning their homes outright, a higher proportion of those not in work at all do so than of those employed. The majority of these are retired people. It is highly likely, given the age distribution of the self-employed, that most of those who own their houses outright are also at the upper end of the age range.


As Michael says, that wealth has not necessarily come from self-employment.

The fact that people who are presently self-employed have a lot of wealth doesn’t necessarily mean that their wealth derived from self-employment or that the self-employed are more likely to save or invest. For many of them, their property and financial assets will have been acquired during employment as an employee. This won’t just be older people who have moved to self-employment as an alternative to retirement, but will also include 40-something employees who are financially secure enough to afford to strike out on their own. On their first day of self-employment they might own their property outright and have a fair-sized financial cushion of savings and investments, but none of their wealth will have derived from self-employment.

People can’t build up significant wealth if they have low incomes. If they are asset-rich and cash-poor, they must have been cash-rich at some point in the past. If their earnings are low, it is unlikely that they became asset-rich by being self-employed. More probably, it was being asset-rich that enabled them to become self-employed.

I wonder if some of what we are seeing here is the Old Rectory Syndrome. The origin of this term is obscure but the first time I saw it used was in an article in the 1980s attempting to explain the difference in work ethic between the UK and the US. I forget who wrote it but I remember the argument well. Americans, said the author, want to be rich. The British, on the other hand, want to be comfortably off. The Old Rectory, he said, was the pinnacle of British middle-class ambition. The Americans would work until they were rich but the British would stop working once they had achieved the lifestyle epitomised by owning an old rectory in a village or country town.

I can’t speak for the Americans but there is a certain truth in this about the British. The Old Rectory is, of course, symbolic. That won’t be everybody’s dream. But once they have what they consider to be a comfortable lifestyle, even high-earning Brits tend to call it a day. Property is key to this, be it an old rectory, a converted barn or a Scandinavian eco self-build. Once the mortgage is paid off, it leaves people free to go and do their own thing. They don’t need to earn much because the house, which used to gobble up most of their income, is now bought and paid for.

That last bit is important. It’s that bought-and-paid-for-ness that allows former corporate professionals to go off and find themselves. For many people, housing costs, or the lack of them, will have been a key factor in making the decision to go self-employed. The important thing is that the house has been banked and they don’t need to worry about it any more. Therefore, people can be property-rich, income poor and a lot happier.

There is an interesting implication here for advocates of a Land Value Tax though. An objection often raised against LVT is the poor widow forced to move out of the house she has lived in for decades because her income cannot cover the tax. But what if the poor widows are joined by a larger, more politically savvy group of income-poor freelancers living in houses they assumed they had paid for? If they have downsized on the basis of having low housing costs, having to pay a tax on the land under the Old Rectory is not likely to go down well.

At the moment, we don’t know how big a subset of the self-employed are asset-rich and income-poor. (The RSA is planning to do more research on this over the next few months.)   It might only be a few hundred thousand. What we can be sure of, though, is that they will be a very noisy few hundred thousand. Another way in which Britain’s shifting labour market might change its politics over the next few years.

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Can UKIP scale up?

Douglas Carswell’s defection to UKIP provoked a furious reaction from the man who thought he was going to be the local candidate at the general election. What was supposed to have been a triumphant announcement was soured by the row, as UKIP supporters insulted each other on Twitter in a way that only they seem to know how.

This is just the sort of shit-storm that companies employ change managers and communications specialists to prevent. Sometimes, when things are changing rapidly, you have to do things that people don’t like. Occasionally, you have to dump on them from a great height. You try to get as many people as you can to support, or at least go along with, the change. For the rest, you do things to minimise the damage. That’s why you use stakeholder analyses and premortems. Work out what might go wrong, who will be most pissed off and what the impact might be.

Roger Lord could stand for another equally winnable seat in Essex, says Nigel Farage. Maybe so, but wouldn’t it have been better to have that conversation with him before the announcement, rather than let him hear it on the news?

Does this bumbling and crass behaviour reflect UKIP’s lack of maturity as an organisation?  In a discussion last week, Brian made this comment:

It’s an interesting point. Scaling up an organisation is not an easy thing to do. Over the last few years, I have worked with a number of companies that were experiencing growing pains. It’s a fascinating process. At a point, usually somewhere around the 100 employee mark, companies have to introduce a certain amount of process and structure or they become unmanageable. There’s another point around the 500 mark, where they need to do even more boring stuff.

Everybody just mucking in and doing things, with the founders making most of the decisions on the hoof, doesn’t work when the company gets to a certain size. The organisation needs to develop a cadre of managers who can grow the business. Often, the founders lack confidence in their own management abilities, let alone those of their direct reports. It’s a problem of both capacity and capability. Are your business leaders good enough and do you have enough of them?

The other problem facing growing companies is what I call Startup Mourning. Wasn’t it so much more fun when there were a few of us in a poky little office, disrupting the market and scaring all the old fuddy-duddy competition? Now we’ve got to go all establishment and it’s so bloody boring! As the HR director of one such firm said to me, “It’s a bit like teenagers being told to tidy their rooms. They know they need to do it but there’s a lot of ‘Awww Maaan! Do I really have to?’”

Stanford’s Bob Sutton and Huggy Rao have done a lot of work on how organisations scale up successfully. It seems that even Google experienced a bit of Startup Mourning in on the road from disruptive upstart to global corporation. As Sutton explains:

Google’s founder and CEO Larry Page is exhibit one. As we wrote in Scaling Up Excellence:

‘Page has been described as “obsessed with making Google work like a smaller company.” In 2001, when Google grew to about 400 people, Page decided that middle managers were creating complexity and friction – symptoms of John Greathouse’s “Big Dumb Company Disease.” So he got rid of all of them. More than 100 engineers reported to a single overwhelmed executive. Frustration and confusion was rampant. Without those middle managers, it was nearly impossible for people to do their work and for executives to grasp and influence what was happened in the company. Page learned the hard way that a hierarchy can be too flat and that middle managers are often a necessary complexity.’

When you get to a certain size, you can’t work like you did when you were a small company. If you do, things will start falling apart.

There are any number of ways to scale up an organisation. Each will be unique to the organisation. But, say Sutton and Rao, most adopt one of two philosophical approaches:

Is it more like Catholicism, where the aim is to replicate preordained design beliefs and practices? Or is it more like Buddhism, where an underlying mindset guides why people do certain things — but the specifics of what they do can vary wildly from person to person and place to place?

So you create a model and structure that works and replicate it, or you imbue people with an idea and let them adapt it to their particular environment and circumstances.

As I was thinking about all this, something else struck me. We don’t study political parties in the same way that we study companies and public sector bodies. There is very little written about them as organisations. A number of academic disciplines, entire university faculties and tomes of literature are devoted to understanding organisations and the reasons behind their success and failure. Yet explanations for the success of political parties usually focus on their policies and the social and economic reasons why they appeal to certain groups of voters. Comparaitively little is written about the organisational factors behind their success. I’m sure some people have studied this but the difficulty I had in locating any of it suggests that the discipline is fairly obscure. This was about the closest thing I could find.

Yet much of what applies to companies must also apply to political parties. Across Europe, there have been a number of insurgent parties of the populist right. All are appealing to similar demographics based on similar concerns yet their success and its sustainability varies considerably. It is true that proportional electoral systems help get them started but that doesn’t always mean they will survive. Under Pim Fortuyn, for example, the Dutch right burned brightly then faded just as quickly. It’s successor, under Geert Wilders, has never come close, despite all the hype. One of the most successful has been France’s Front National, all the more interesting because it has broken through in a first-past-the-post electoral system. That this has something to do with its capacity for organisation is suggested in a couple of papers though, again, the literature is sparse.

The successful insurgent parties that have appeared over the last few decades are, if anything, characterised by the slowness of their growth, rather than its speed. The Scottish National Party, Sinn Fein in the Irish Republic and the various Green parties across Europe are examples of steady, rather than hyperbolic, development. How far has their success been due to the long-term development of organisational capability?

The lack of a successful party of the right in the UK has been partly due to the electoral system but also because our far right parties have been rubbish. Like companies, insurgent political parties experience something similar to Startup Mourning. It’s great fun when you are upsetting the system but tedious when you have to start building a party for the slow grind of winning elections. Even more tedious when you have to start running things. The BNP’s disastrous performance when it finally managed to get its councillors elected shows its complete lack of competence as an organisation. It produced plenty of people who could rant about things but very few who could actually run things.

Britain is as fertile a territory for a populist right-wing party as anywhere else in Europe. Until now, though, no-one has developed the organisational capacity to mobilise the dissatisfied of Tunbridge Wells and the downtrodden of Merseyside into a coherent and sustainable political movement.

Could UKIP be that organisation? As with a company, growth depends on people with the right organisational capabilities. Does it have them? Does it have enough of them? If it doesn’t, can it develop them quickly enough?

As Robert Ford and Matthew Goodwin say, since its foundation, UKIP has shown an almost complete absence of organisational ability:

For much of their history, the party repeatedly undermined their own prospects through fierce infighting, strategic miscalculations, single-issue obsessiveness and a failure to build an effective campaign organisation. That they even survived the past twenty years is, in itself, truly remarkable.

This, they believe, is now changing. Whether it can change quickly enough and whether the party’s leaders can manage that change will determine how successful it is over the next few years. Last week’s fiasco suggests it still has some way to go.

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The spirit of the age

The announcement by former boxing promoter Frank Maloney that he is undergoing gender reassignment was met with less hostility and more support than I (and probably he) expected. Boxing is, after all, a very macho world and transgender is probably the last frontier of sexual liberalism, the subject still causing the odd row even among liberal types. Even so, things seem to be moving in favour of social acceptance and equal rights. It took courage for someone in Maloney’s line of work to go public about a sex change but he probably got less rough treatment from the media than he would have had ten years ago.

I was reminded of this when I read Giles Wilkes’s comments on John Campbell’s biography of Roy Jenkins. More than any other politician, Jenkins symbolises the 1960s liberal attitudes which, eventually, prevailed in Britain in the subsequent decades.

Says Giles:

[H]e achieved an astonishing amount in a short time in the Home Office In less than two years he helped end flogging in prisons, legalise homosexuality and abortion, end theatre censorship, and bring in a Race Relations bill. The latter is despite the fact that both the TUC and CBI opposed Jenkins’ measures to improve racial equality. The author explains the former simply with “there was still a lot of casual racism in the workplace”. I still don’t understand it.

I do but then, I’m nearly a decade older than Giles. In the 1960s and 70s, a lot of the trade union left wasn’t all that liberal. It fought for workers’ rights. It was ambivalent, or sometimes hostile, to claims for equality based on anything else. Casual racism didn’t only take the form of personal abuse; it was prevalent in the language people used. A sentence like, “I’ve been working like a black and now they’re trying to jew me out of my overtime pay” would have passed without comment in many 70s workplaces. People would have been bemused by the suggestion that someone might take offence.

The change in how people view sexism, sexuality and racism has been the biggest shift in attitudes I have seen in my lifetime. The decline in smoking and drink driving run them pretty close but they had the terror of cancer and driving bans to back them up.

Sure, the law has played its part. Nowadays, a manager couldn’t tell another to “get his typing done by the wog” and win the resulting tribunal case. He could get away with it in 1985 but he probably couldn’t now.

The law has criminalised the worst of racism and sexism but social disapproval has done its bit too. Much of what used to be common racist language has been banished to quiet pub corners and people’s front rooms. It’s not allowed out in public any more. Rather like persistent drink-driving, it’s something only diehards of a certain age do.

What makes attitudes change is a subject that has perplexed social scientists for years. A report by Institute for Social and Economic Research (ISER) in 2010 explained:

Changes in attitudes across time are considered to be the result of three general processes: generation (or cohort) replacement, life-cycle (or age), and period effects.

I’ve always thought the ‘one funeral at a time’ effect, where people holding the old views gradually die off, taking their attitudes and prejudices with them, was a little pessimistic. After all, I’ve changed my mind about stuff over the years so I’m sure other people must do too.

There’s some fascinating research from IpsosMORI on this. Looking back through the British Social Attitudes survey they have mapped the changing social attitudes of age cohorts over time. That people get more conservative as they get older is one of those things that ‘everyone knows’ – except that they don’t, at least, not where attitudes to things like gender and sexuality are concerned.

Among all generations, even those born before the Second World War, attitudes towards gender roles and sexuality have become more liberal.



Attitudes to the death penalty, Roy Jenkins’s other signature policy, are also moving in the direction he would have liked.


Of course, somewhere around fifty percent of the population still holds small c conservative views on these questions but, slowly, attitudes across the generations seem to be changing.

Some of the other charts, like support for the welfare state and monarchy, might provide less comfort for those on the liberal-left but almost all of them show similar patterns over time across the generations. So, for example, if support for the monarchy or NHS falls for a few years, it tends to do so among all generations. This suggests that politicians, commentators and the news may have more effect on people than they like to think.



There is, then, an observable difference between generations but also evidence that the changes follow a similar pattern. The old are generally more conservative than the young but they get more liberal at the same rate. The most interesting thing about these charts is that the patterns track each other and show people changing their minds in similar patterns. So society is getting less homophobic not just because homophobes are dying off but because people who once thought being gay was wrong have changed their minds.

I’d be fascinated to see something similar for attitudes in the workplace. How have the attitudes of generational cohorts shifted over time? As I’ve said before, I’m sceptical about the attempt to categorise generational attitudes to work and I’ve yet to see any convincing evidence for it. We are constantly (to the point of tedium) being told that Generation Y want more freedom, more flexible working, less hierarchy and all that but I wonder if this is really a generational difference or just a symptom of wider changing attitudes. Just as Boomers and GenXers have become more liberal over the years, have they also decided that they too want a more autonomous and less deferential working environment?

A couple of years ago, I was at a conference where a Millennial told us oldies about all the things that Millennials want from work. I replied that I, as someone on the outer suburbs of GenX, I wanted those things too. I don’t think I’m unusual in that. I think many of us have changed what we want from the workplace. I know people who had a command and control approach 20 years ago who now have very different views about managing people. They are not trying to be down with GenY, daddio, they have just changed their minds about what works.

It’s not just funerals and retirements that change attitudes. The process by which whole societies change their minds about things is much more interesting than that. Generational attitudes waver and people move with the times. The word zeitgeist translates as spirit of the age. That spirit moves in mysterious ways.

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