Category Archives: Scottish Economics

Scotland Ltd – The Difficulty with Turn Over

In my last post I looked to criticise the SNP’s approach to economic figures. They have a kind of default position which is ‘ we won’t know how much tax revenue we will get until we go independent and we will make decisions based on the realities of oil price and the global economy at that time’. Well that is not good enough ! They should really be challenging the GERS figures and not allowing them to be a stick they beat  themselves with.

In particular in my last blog I came amazingly, and suspiciously close to GERS figures for tax revenue by using UKGov and GERS statistics, oft quoted by Better Together. Suspicisoulsy because I allocated pro rata to the 8.6% of total UK population  and made only a minor tweek to income tax revenue, due to the surpisingly higher average wages which Scots can now boast over rUK average. With the deficit accredited by GERS, I was within a couple of billion either way, and I didn’t have the entire tax picture, there was more to come.

Hard to Get A Handle on Scotland Ltd’s Top Line ?

The trouble is with GERS is that it is very difficult to disaggregate Scotland Ltd from United Kingdom PLC on the balance book. The over riding reason for this is that companies are not forced to have a legal accounting entity north of the Border and even when they do, goods and services may well be accounted for by their southern offices or depots.

This applies to every part of the (private sector and VAT’ed) economy, apart from of course North Sea oil & gas which has a fortuitous geographically defined, by oil field reporting method due to the royalties excised per barrell. (Or not when tax right offs exceed income or what ever other fiendish mechanisms big oil corporates are using. They do invest hugely and have decommissioning costs too it has to be said. )  However the GERS figures and UKGov publications reveal discussion and disagreement about these figures, and make some estimates about on shore and supply chain contributions to Scotland Ltd.  If for example, the majority of 200,000 odd oil workers were taxed and payed NI in Scotland, or this was equated into GERS today, with their famous wage packets, how much smaller would the deficit be?

It should be easier for the GERS figures to come up with an income tax and NI figure based on statistical analysis of average wages and size of the work force. So I took a fag-packet figure on this. However higher wages and lower house prices mean that people are spending more on life’s luxuries, which are VATable, and it doesn’t look like GERS revenue factors in this or the Scot’s liking for a bevvy, or that commuting distances can be longer for our motorists. After my minor adjustment for higher revenues from income tax and NI, adding on arbitrary per capita basis, x 8.6% that is, we get amazingly within +/- £2bn of the GERS budget deficit of between £11-15bn depending on the year in the period 2012-2016.

What the SNP Need to Prove to Themselves and the Electorate- GERS Are Wrong

Now the SNP cannot go into a new referendum without being able to say that Alec Salmond’s lower than Westminster Corporation tax would work, and the rest of the country would pay much the same income taxes and VAT without a far better handle on what Scotland Ltd’s actual turn over is ( ScoGDP) .  Depending on the year GERS varies between 7.4% and 8% allocation of  ScoGDP to UkGDP. Yet we have higher average wages and we have the lion’s share of the North Sea industty off – and on- shore.  However GERS manage to allocate as high as 15.7% of the national UK budget deficit to Scotland, mainly by how they allocate expenditure above Barnett block grant. Or are they missing somethign else out from their revenue equations such as local authority taxes AND incomes ?

I didn’t complete my tax summary for Scotland because I got bored and am neither a tax accountant nor an economist. I stopped when revenues tied with the balance sheet and a deficit or around £13-15bn. Niether did I scrutinise that allocation of Westminster public spending which ends up in Scottish hands directly and not via Holyrood. Nor did I enter the agruments about what Scotland would have to pay for itself in terms of defence, pensions, social security and so on. This is because I am a bit thick and lazy. But also because it gets rather complicated in terms of horse trading between money which is locked into the Scottish economy, or so what if public spending rises as a proportion of GDP if those are jobs in the new armed forces and governmental departments.

Let us keep it simple, stupid. The balance sheet. What does Scotland Ltd turn over, how much does it tax of this turn over, and how much must it borrow or pay off in debt each year?  That is what my last blog was about. This blog is about what could be wrong with GERS.

Exports Are the Fly in the GERS Ointment, The Smoking Gun for  a Bigger ScoGDP

Where have they come up then with this figure of £50bn exports to rUK versus £12.3 bn to EU and why is ROW not in that BBC and other media report for exports from Scotland Ltd?  This is important because the balance of trade is a major economic indicator. Arbitrarily, Rest of World (ROW) exports should be around £13 bn on a per capita basis, meaning that Scotland Ltd exports exactly twice to rUK than it does to anywhere else. Not a surprise, we are an island group of nations with a common language. It is difficult then to disaggregate what these exports are then? How many get sold on and shipped further   out of the UK? How many become major economic components or ingredients of items or services exported outside the UK? I played dirty, I took it as bible BBC figures and then added up the same sources quote on exports to the EU, and then took 8.6% of total UK exports to RoW.

However how was this figure, £50bn, a third of the Scottish economy, deduced and how accurate is this as a figure in itself? Now you can give the estbalishment a stick to beat themselves with as I pointed out, because Scotland has a propensity to export goods. If would take the position that far more than half of this fifty billion rUK ‘export’ goes further in the world to reduce Scotland Ltd to the same proportional balance of trade as UK PLC, which is 30% import as GDP, 20% export for 2015 and as a trend around those figures for some years going back.

If you use exports as a proportional index to work back to total GDP then the worse the balance of trade for Scotland, the more innaccurate the GERS figures for ScoGDP are, and the better the balance of trade for Scotland, the more unlikely the GERS  tax revenue are correct because there is more economic activity in the private sector than the arbitrary allocation of taxes builds up.

Saying this is a proposterous index to take, then means that Scotland Ltd is a very, very different beast from rUK ltd. Firstly it looks like Scotland has a net positive balance of trade, which is extremely healthy for any economy. In turn that is an admission that Macro economic policy for  the financial capital London, and the SE in particular is far out of line with that which will work in Scotland. Or Manchester for that matter.  Secondly it means that Scotland has a higher productivity per worker but this is hidden somehow. Why is this the case though? Because a balance of trade negative means that the country is borrowing more money, and some of that has to be done by the national, central bank to hold up the credit in other banks. This then means that per capita, each worker has reduced productivity because they are working off debt.

That is a kind of a tautology you may say. Yet in reality as we know, a poor balance of trade and high consumer and national borrowing almost brought down modern capitalism in 2008 and it had to go to the tax payer and public pocket to bail it out.

The GDP to taxation ratio is the real over riding key indicator of an economies health in terms of what investors and creditors are looking for. Too high and the country looks like a communist run state, too low and the country is not spending enough on the societal welfare, defence, education and infrastructure. The next related pair of economic indicators are the public sector borrowing requirement, ie the budget deficit and the amount of national debt. These two are inter-related closely but it is not entirely the case that we have a mortgage which just gets bigger, nor the case that the PSBR is a temporary overdraught and national debt is longer term. I am nowhere near to understanding that equation. I like arithmetic. I like sums.

The SNP Are Not Finding the Devil, When It Is There in the Detail

The SNP do not have their sums right then. They cannot go in on a wing and a prayer that all will reveal itself to be shiny and we will balance the books based on current spending and borrowing, while maintaining public spending. However I consider them to be lucky in that the GERS figures are not giving the whole picture. It is true to say that like in the chemical baths of an olden days dark room the picture will develope once the jump is taken. However that will be the economic vagiaries of that period of time in change over.  The SNP have to come with better figures on ScoGDP and real tax revenues, or a fiscal strategy more people can believe in before they go further.

Brexit is More Predictable as a Playing Park than Indy or Not?

Brexit in some ways is less risky than ScotXit fro UK PLC. This is because we know the ‘no deal’  position is WTO, whcih is not the end of the world by any means, and also we have the Swiss- EU , the Turkish to EU and the EEA – EU trade agreements as models for something better than ‘no deal / WTO Default’. However this is then only telling us the costs of trading, not the actual impact on trading, which for Turkey for example has been a positive. It could well be very negative for the UK.

Scotland will be a prize for the EU as post Macron, it starts to reassert its’ raison d’etre and economic security, but only if an independent Scotland is has a robust balance sheet, or can sustain a few years with borrowing to get to a better position. The SNP have not settled this issue of the balance sheet, nor has GERS in my opinion, which should in theory put independence into the category of much higher tax for Scots and lower welfare.

Why is Scotland So Much Smaller An Economy than Comparitive European and Former Colonial Countries? -Because the GERS are Wrong?

I do not believe that scenario of a basket case Scotland Ltd as in the paragraph above. If you take Norway, as Alex Salmond likes to, it has just under twice the Oil production of Scotland, and you could therefore say that GERS are roughtly right because Norwegian GDP is around twice that of Scotland – but 80% of their taxation comes from oil related activities. ( That figure could include a raid on the “oil fund ” by the Norsk chancellor the few last years, I would need to check)

In fact I believe that the Scottish economy is more like 2/3rds the size of the Norwegian economy at around £200bn, placing it around 9 to 12% of UK total GDP. This is because Norway has few other major economic activities outside oil,  apart from fishing and aquaculture, which are net cash earners.

Denmark for example has run with a GDP averaging around about £244 BN for the last decade or so. Why is Scotland with its diversified economy not nearer a figure like this, since it has a much larger oil field than Denmark? Why is it down at £140-£162 bn depending on the year in the GERS figures ?

What about a more recent country which went independent from West Minster and has many similarities to Scotland – New Zealand.  Oddly enough this nation of 4.6 million people had a GDP last year more than GERS allocates to Scotland in most of the last six years, at £155bn.  Yet it has a tiny oil industry and is reliant on agricultural exports and tourism.

So I do not believe in the GERS GDP figures for Scotland Ltd, they are under estimating the size of the economy, and therefore they paint a bleak picture on tax returns, debt and public services. We have that unusually high level of exporting, which paradoxically betters the position for independence which ever way you slice it up with rUK, either in favour of a larger GDP or a much higher productivity per worker. You have other westernised countries  of 4-5 million citizens with bigger GDPs, even without large natural resource deposits. Then you have that me, a motley fool, can recreate the GERS tax revenue estimates on the back of a cyber fag packet, suggesting much of it is allocated arbitrarily per capita, 8.6%.   The SNP have failed to tackle this with real facts or lines of arguments which will point to a more secure future.

 

 

 

Scottish Independence ? Stop Getting GERS Right

When I left Scotland over a decade ago, both Scottish Independence and any notion of  Auld Blighty really leaving the EU / EEA were far from my thoughts, and seemed both to be rather extreme notions on the fringes of politics.

Having lived in Norway all those years in blissful exile I would now say that I have gone well over the threshold for Scottish independence post Brexit vote, yet I believe the SNP are doing a terrible job at making the economic case for it. The GERS figures have become their own stick to beat themselves with.

Norway by the way,  celebrated 100 years of independence in 2005 and has never looked back from becoming a state in its own right after over 300 years of unions with its’ respective  neighbours. There is something about national pride through thick and thin there, but of course post oil discovery it has become the wealthiest western country per capita.

Comparisons to Norway – Valid? Certainly Illuminating.

Alec Salmond likes to bang on about Norway and he is both right and wrong in that respect. The facts are that Norway has an economy approximately twice the size of Scotalnd – if you compare according to the GERS figures in 2015. With oil revenues being hit hard in both sectors, Norway’s GDP was around £320bn 2015 vs the highest GERS estimate including oil for Scotland at £162bn for 2015.  There is maybe no conincidence then that average wages in Norway are approximnately twice as high at around £52 -55,000.

Which means a pint at around £8 or £9 quid is more affordable than one at a fiver in most London pubs these days. Income tax is not that high for average earners, with MIRAS still in place on in fact all loans, and local authority taxes seem to be a little less than the UK. I pay around about 30-34% of my income and usually have a wage at least half as much again as the UK, withou housing outside the main cities being much more afordable than the UK.

Balance of Trade – The First Smoking Gun in My Detective Story

Norway has a large export surplus that is to say a positive balance of trade. However here we hit an interesting set of figures which I can’t explain when comparing Norway to Scotland using GERS and other BBC/ Better Together sources of statistics.

It is famously reported – in a neutral BBC tone but firmly in the ‘better together’ camp – that Scotland enjoys just under £50bn ‘exports’ with rUK,  with exports from Sco’ to  EU in comparison a paltry £12bn from the same source.

Of course this is misleading because many rUK exports from Scotland include  raw materials and goods and services, which get sold to the EU and ROW. But let us say carry on in that BBC tone of voice and aggregate it all rather than adjust that £50bn downwards.

We then have an economic figure of £62bn if we ignore further exporting and just take it on reciepts. Let’s add tourism, governments own figures, £6.2bn, and because it is importing net cash therefore a “qausi” export- it is foreign consumers and foreign monies in return for something Caledonia does very well by nature.

What about exports ROW though? Let us use some GERS presumed methodology, based on an arbitrary population share of 8.6%,  when extracted from UK Gov’s figures for the whole UK x 8.6%  we get £13.5Bn ROW exports from Scotland.  That guestimate is as valid as very much of the GERS figures which use per capita and oddly enough, ‘geographical’ criteria for arbitrary allocation of worth when it is not glaringly obvious in tax returns or published data. What about Whisky, Salmon and Oil? Do they not move the ROW figures up over too. Does Scotland not export proportionally more produce than rUK? Hmm the plot thickens….

So here is some simple macro economic arithmetic by yours truly- £50bn + £12.3 bn + £6.4bn + £13.5bn  = £82bn, or over half of GDP,  and incidentally more than Norway exports – what is going on then?

A country for which exports account for half (or more) of the GERS stated GDP i.e. its’ whole turnover , its economy-as-we-know-it, and so by default having a positive balance of trade?  ALL of this is based on government and sound economic figures used by UK gov and Better Together. 

Scotland’s Curse of Oil and Gas

Let us look then at Oil – ( and gas, which I will come back to). The figures are astounding in fact, and explain very well why even through the ‘$30 barrel’ shock of 2014-15, fields survived and are still open and (while of course exploration is virtually zero but someone got lucky it seems ). The UK sector still produces around a million barrels of pertoleums a day!

At even three year guesstimated average of $45USD pb over time, that is $16.4 bn per annum, over 95% from Scottish territorial waters. My calculation with today’s exchange rate is £13bn a year, but that is not just any old £13bn, that is primary production, value added supply chain, high wage and mostly exported. It is not money circulating around in cycles or crypto-keynsian private sector stimulus via personal and business credit (debt).

We then have also gas, which it is hard to extract out from the figures on ‘petroleum’   yet Gas in terms of the UK as a whole, is now the single largest source of energy for electricity generation and domestic energy. ( Don’t tell the bloody jocks!). Almost a  third of UK electricity is from gas, and of course lots of folk have gas at home. Now rUK waters produce some gas, but most comes from the N sea and imports from elsewhere, including Russia. It is complicated then to extract this, but if we start pumping CO2 down old oil wells ( Once global warming heats up, no ice age in the next hundred thousand years, sorry boys) then this combined with renewables and nuclear makes Scotland self sufficient and a net exporter of power it is proposed. You go do the sums on gas and ‘leccie, they won’t suit Better Together, especially not when Scottish consumers are being charged more per unit for delivery.

The Trouble With GERS….

GERS figures are a based on estimates, that is stated in every official and public document you will find on them. Estimates. And that is by  Sco Gov and the UK Statistical Authority’s own very clear admission.   They emphasise throughout their literature the apportion of public spending in Scotland and taxation from inhabitants ie per capita,  and ‘ identifiable and attributable activity’ which makes adjustments up and down for known cases, such as N.Sea economics. How much of  ‘ScoGDP’ is arbitrarially calculated and how much is done using more accurate build up methods or other boffin like stats? I can’t find information on this. It is in the realms of the ‘impartial experts’ perhaps, or maybe I am being lazy today.

Tax revenues  are perhaps a hell of a lot easier to calculate accurately for ScoGov and the Scottish Office and the UK Statistical Authority, and who ever esle in UKGov who is involved in the cauldron of statistics. More accurate because ScoGov and UKGov own the figures, they have a census of the populace of tax payers-  but are these tax revenues   based on arbitary allocations per capita or are they not?  Is there not perhaps a bias in reality caused by higher wages north of the border?  –  the North Sea oil industry seems to produce a result where the  average salary is four thousand pounds higher for Scots than rUK. But is that included? That means also a bell curve capturing more higher tax bracket employees? There were in 2013-14 225,000 Oil workers on- and off- shore,

Have they taken this into account with that nasty deficit per capita they like to share, higher per person than rUK? We have then 8.6% of the population, 9.7% of UK tax revenue (inc petroleums) yet 15.7% of the budget deficit? All GERS’ figures not the SNPs’, not John Robertson’s.

Ah but you can wheel out the Barnett Formula. Scots are pampered.  Well in fact Londoners are more pampered, with a higher proportion of total public spending per capita. You have then about £51bn (per capita x 5 million estimate) ‘identifiable’ public spending allocated by the last barnett formula to Scotland, and about £75 bn for London in 2013 figures at 8 million people from the same calculations and sources.  Now look at GERS, which state that Scotland has a deficit in relation to this 51bn of identifiable public spending or 15bn a year. Actual total GERS figures of public spending in Scotland for 2015 were £68.6bn.

Now in Scotland there are an estimated 2.8 million in work, with an average wage of £26k and given a little over a  third goes in income tax and NI from this figure, we get a simple,’  idiotic me ‘ tax income for Scotland of  £25bn , we then can add rates, council tax and council incomes at appx £10bn. So we get to £35bn vs £69bn expenditure before corporation tax, VAT and excise duty.

VAT now, the UK HMRC give a figure to financial year 2017 just ended of £119bn. Now let us be purely fair and arbitrary and allocate 8.6% to Scotland: we get appx. £10bn. So now we are income £45bn versus expenditure of £69bn. We are though, almost covering our tails for the Barnett formula on central funding at that £51bn oh-so-generous figure.

UK Motorists paid in a whopping £28Bn in 2009 in taxes excluding VAT , so we can claim that 8.6% of that, and excise duty on domestic consumption of booze and fags at about £500 million for Scotland, so coming to another £3bn income on our arbitrary round up.  There are other silly wee taxes, airport and so on, let us just ignore them.

What about corporation taxes then?  Well in 2015 they were $44bn which seems a very low figure in comparison to VAT returns, but it is tax on declared profits after all. So we can say that was £4bn for Scotland in a purely arbitrary way. Now we come to £52bn , we have surpassed Barnett but have a deficit to total spending of £17bn. If we take those silly wee taxes then perhaps we have a deficit of £15bn or the high point of GERS figure deficits.

Income Vs Expenditure Then- What is Going On?

Now this was a real back of cyber-fag packet ‘build up’ model and does not take in to account the vagiaries of what Scotland actually gets up to as an economy. Remarkably to me, it comes within a whisker of the GERS figures for that nasty deficit and whole balance sheet on the tax revenue side.

I adjusted only in one area, that being a little for the higher average wages – it could be argued that these are skewed by smaller higher income workers, or conversley perhaps we get a few more % income because more people fall into the higher tax bracket and pay proportionally more due to the high standing of personal tax allowance and lowest rate on the first part of income. I could have missed out some significant portion of employers NI contributions, or taxes in investments, pensions.

Either way we probably get to the arbitrary deficit in the region of 11-15Bn per year over the last five years or so. How much is now being addressed by the new local taxation powers taken up by the SNP and if we had a labour majority in Holyrood you can bet they would do the same,  in the face of central cuts which have the aim of alleviating the deficit for the whole UK.  However is this a true revenue picture or are this there effectively higher productivity in Scotland ?

It comes down more then to that extra attributed £9bn or so monies which are general central government expenditure, allocated to Scotland. This may seem a very small sum, but in terms of what GERS allocated, £69bn, it is in fact 13% of expenditure.  So one in eight pounds spent North of the Border are direct from Westminster not via Holyrood. This includes then defence, international embassies and affaires, EU membership fees, pensions and benefits, pay off national debt –  Wow !! what a super, super deal you may say!

Stop Getting GERS Right!

So playing the idiot savant, with only one minor adjustment for average income, and using figures roundly quoted by Better Together from government sources, I have replicated the GERS figures for revenue within +/- 5%, and I am a motley fool.  This isn’t pure luck though, because I have been through the Lion’s share of UK statistics from UK Gov and the GERS figures and by in large used that 8.6% arbitrary population attribution.

Here comes the rub. The statisticians involved in both Whitehall and Scotland cannot even agree on the allocation of revenue from the North Sea, which industry sources would seem to contradict in that this should be quite definable geographically. We know the amount of and oil and gas per year  and that over 90% is produced in what by any definition currently pre Brexit, would be Scottish continental shelf.  So what chance the rest of that they are getting the rest of the economy right?

In 2016 the UK budget deficit was 3% of GDP.  This would equate to a deficit in Scotland based on the highest Gers figure for ScoGDP,  at £4.86 Bn for 2016, based on the ‘high’ estimate,  including oil income ,  with ScoGDP of £162 bn. However what we are reminded constantly is that per capita deficit is much higher than rUK as shown by GERS. In fact if you look at the figures for 2014-15 then we have been allocated 15.7% of the deficit with only 8.6% of the population. In that year the UK deficit as a percent of GDP was 5.7%.  We see that Scotland has been allocated a formidable 11-15 bn deficit while it is predicted for this year, 2017, to be in the UK as a whole has £51.7bn, which on the lowest allocation for 2017 based on that £11Bn,  means that Scotland has to take 21% of this deficit, on that 8.6% but with that extra Barnet money of £7bn (on a per capita basis vs average for the UK) !

What in fact is going to happen is that the Conservatives have reduced the deficit by good means and foul by £20bn for the budget year 2017, but don’t tell the bloody jocks that their deficit might also be just 5% of ScoGDP therefore being under £10bn for 2017 or 2018.

GERS in A Bubble Show a Heddy Truth Even By Their Own Figures

UK GDP as a whole was estimated at £472 bn ( that is £471, 939 millions) for Q1 2017.   This is seasonally adjusted thus we can say that in a growing economy this year, Annual calendar year GDP will be around £2,000bn. Why has Scotland then not 8.6% of this ?

Instead the GERS figures show we have £20bn less on a purely per capita basis, yet we have a higher average wage than the UK,  and excluding the south east of England, similar unemployment – in employment rates to rUK? Our economy purely based on arbitary per capita is then £172bn this year, which is substantial growth from the low GERS figure for 2015, unlikely to actually be realised if those GERS figures were correct. In other words the economy would need to have grown to meet this arbitrary figure of £172bn from £162 ‘high on oil and gas’ GERS figure for 2016, it would be economic growth of around 6% p.a.

Rather we have had a larger economy than even this £172 arbitrary allocation in my opinion, and this is the key issue with the Gers figures for me- they don’t show ScoGDP in reality and their methodologies are selling us short by using a per capita basis with a minor adjustment for oil. A Scottish economy two thirds the size of Norway’s would seem to make some sense, so I would bet at around £200bn in fact. Let me go away and compare oil production in Norway.

So what is so tragically inconsistent  with Scotland is that the country makes £10-30Bn less in the actual GERS figures than this £172bn  over the last three years on average, calculated from a per capita basis in GDP, while Scotland has a share of the budget deficit at 15.7% of the whole UK.

Is it then the case that the City of London is so very much bigger in the English economy and eclipses us? In which cases surely City figures should be extracted to show true rUK figures, in the same way Oil is often extracted from the Scottish economic figures?  What deficit then has Manchester ? Yorkshire?  Devon?

Scotland – Wealthy And A Primary Producer Par Excellence

Scotland has a high level of primary production and value added manufacturing- there is oil  & Gas and its’ global supply chain here ; there is fishing and aquaculture being the vast majority of UK harvest; theres is a proportionally large agriculture and forrestry industry; a value added food manufacturing industry;  that £6.4bn tourist industry; there is not only whisky but other spirits and brewing, theres biotech and pharma; there is chemicals and there is too petrochemicals like Grangemouth. Then there are less export oriented service industries and construction, but they all count in the GDP, Scotland Ltd’s turn over. The financial sector is an interesting one to say the least.

On expenditure vs revenue then, we can say there is the Barnett block grant plus a net £10bn of local council income, and now a net increase in taxes, the next GERS figures are yet to be fully assessed.  Now we can’t actually spend more than we get, even though some is ‘deficit’ ie public sector borrowed monies. What the £9 bn , over and above Barnett and council taxes and revenue is through central government not via Holyrood as we discussed.

However what is very odd is the governments own figures on exports, which puts Scotland as a net positive balance of trade country versus this not being the picture for the UK as a whole,  thus making the balance of trade case for rUK worse when Sco is extracted. The UK as a whole had a balance of trade in 2015 to the tune of approximately -£200bn, with exports being around about 20% of GDP and imports representing 30% roughly. 

Back to productivity, this means Scotland is less reliant on consumer activity – ie the tertiary economy which was so much of the cause of the financial crisis in 2008 and recessionary conditions after, and low growth and stagnation in many western economies when the national credit card bills just had to be paid down., in both public and private finances.

The fact is that Scotland possibly exports even more of its produce and it is therefore an even larger part of the economy because there is so much primary production, ok, biased by North Sea Oil & Gas as it is at about a third of exports. Now this is good, honest, profitable private business, it isn’t funny money and it isnt retail buying in cheap from China to sell at a margin. Even with the governments own figures and an arbitratry allocation it is half of ScoGDP. I would say that it is more than this, and thus a higher figure due to there being so much primary production and secondary value adding going on, which may then in turn push the entire GDP up and reduce the deficit.

The SNP Have To Get Better Figures

To summarise then, I believe GERS to be potentially flawed in terms of total Scottish GDP and what actual tax revenues can be allocated to the nation, and what the real level of direct central government spending is. It could well be a bleaker, worst case scenario in fact if you want to be a pint half empty person!  GERS may be allocating far too little of general public expenditure from central Westminster /Whitehall sources.

However I just don’t believe in the figures for on the one hand ScoGDP and on the other the level of the deficit, which is kind of a locked cause-effect .  The reality is though there is a deficit and a monster UK national debt which has doubled in a decade and only now may show signs of abating, just in time for the turmoil of real Brexit. Capitalism and the stregnth of the pound are a week to week, quarter to quarter phenomenom looking at results and indicators on the ‘event horizon’ and concentrating on making money rather than sooth saying and doom predicting. International capitalism and trading floors ‘ carry on regardless’ making a quick buck until the roof falls in, as we saw in 2008.

The SNP are making a big mistake by broadly accepting the GERS figures as the most trustworthy source and asking the Scottish public to trust them on the basis that ‘ No one really knows how much money we will get in from tax and what price North Sea Oil will command’ until the time we go independent. In reality they should be arguing for a comparison to rUK excluding the City of London, and arguing that with oil vs city trading in fact Scotland has at least its per capita share with the city and oil in the picture, and a higher per capita if both those are extracted. They should be assuring that in fact, GERS fall short of what ScoGDP really is.

My own wet finger in the air would be that if oil continues to be £55USD pb then Scotland makes for 9-12% of the whole UK economy, and is by far the most productive region outside London in terms of exports per capita. That is wishful thinking more than even opinion you may say.  But given we have North Sea oil & gas in our GDP then surely we are more than 8.6% of UK GDP, and not as low as just under 8% as GERS indicate?

Pro independence folk or those who are just on the fence and  a little concerned, the floating Labour voter who knows they are getting 10 years more of conservatives in Westminster, should be asking the questions about GERS. It seems that they are ‘accurate and impartial’ in that the tax revenue is based on hard figures and per capita arbitrary allocation, as how else would I come so close in a ‘build up methodology’ to their revenue figures? However how are they calculating or building up GDP for Scotland? The clues that it is potentially higher are – employment rates, higher average wages, exports amounting to half the GERS figure GDP.

Exports are a good index to smoke out the ‘impartially didn’t see that’  in GERS allocation of ScoGDP because as a whole the UK economy exports between 25 and 30% of GDP in any given year.  Now of course some of Sco-rUK “exports” , remember that £47bn – £50Bn we should be so grateful for,  are re-exported or have value added to them and are then exported from rUK.  Including tourism we have in fact exactly 50% of our economy as exports – £81bn exports and GERS top figure ScoGDP £162bn. So it is very, very odd that Scotland has so much higher a % exports, given that rUK plus EU plus ROW (the last one being my estimate, it could be higher than arbitrary % share of UK per capita,  and IMHO probably is) . In 2015 the UK as a whole exported £425 bn, which was about 25-30% of GDP. However it imported £606 Bn

We could then use this indicator index of exporting and say that in fact Scotland is not so weird and exports more in line with rUK. We can then tramp it down to exports at 40% GDP because oil, gas and electricity are so large. We can then exclude tourism for the sake of complying.  Then we can back calculate ScoGDP as being £187bn for 2015, as against GERS ate £162bn. The figure if I remember right was that Scotland tax revenues were at 34% GDP, so we get a third of this back in taxes this being £8.3bn, and reducing the deficit, the national bridging loan on the mortgage, by more than half.  Now if exports are taken at the same level as UK as a whole, 30%, then this makes ScoGDP higher because those hard figure exports are a smaller proportion of ScoGDP.

1705 -1707 All Over Again?

This is a major line of argument for Brexit and against ScoIndy- does Scotland want to risk those £47bn-£50bn rUK exports? Does Germany want to risk those BMW sales? Italy those Gucci sales?

This is a simplistic, childish argument which appeals to unfortunately, the Brexit -Leave voter demographic. In reality it is rUK and UK Ltd who are dependent on imports to make their economy go round. The exchequer gets more margin out of those Gucci shoes in VAT and more in life cycle from those highly taxed, full-service-history BMWs than they do in Bayern!

In terms of fresh scottish food produce, oil&gas, chemicals and not least electricity, rUK are dependent on these for their supply chains and to be able to add value for export further a- field or just do retail and services domestically.

However this is being dressed up now as a 1705 proposition, with a near ‘bankrupted’ new state being held over a barrel once again with its’ beef exports being denied a market. That is currently exactly how spiteful the Tories are in fact, but any independence will be after Brexit and the shock to supply chains in Brexit will mean a possibly gentler negotiation with a new, pre-EU state as a major supplier and business partner.

The folly of going with a ‘no deal’ or obstreporous Brexit deal with the EU will be more apparent as soon as supply chains are disrupted and many of those cause celebres, the farmers and the fishers, find that the EU was their easiest and most important export market. Trade deals with China and India are the great white hope, but these will be done behind close doors and full details may be withheld from the public until they are signed. So much for more democracy.  Brexit is the real cause of IndyRef II, and I hope the timing is right such that the effects of Brexit and the arrogance of the Tories become fully apparent to the Scottish public.

 

Populist Alt Right- Only Actually Popular with The Media

The ‘Alt Right’ are on the move. They found each other in the electric interweb and liked each others’ “we poor derprived white male workers should come first” rhetoric for covering their inherent racism and all the other nasty -isms they have. At last many little xenophonic nazionalists had a voice. But that is only because the media wanted to give them one.

Let us be clear here, Populism just isn’t very popular. Marie Le Pen fielded votes at just over 20%, sneeking ahead of the communist party candidate. Geert de Wilders fielded about the same, and none of the other parties will let him into government. Austrians right wing presidential candidate was beaten by a Green, and after the re-run he will not persue an EU busting, Putin  Friendly agenda. HUngary in truth, has always had a rather dark, isolationist view of the world reflected in the post communist democracy swinging to the right.

No the real story here is that there IS a story. The media were getting very bored with the centre consensus where the Neo Liberal, globalisation model was adopted by all the major parties. If you look back into the electoral registers and hustings’ rhetoric of 1970s britain, I am sure you could find that a fith of the vote in some constituences went to the british national party. But the first past the post system kept them out of parliament and therefore out of the day to day media gaze.

Here we come of course to Trump, the great white hope of the Alt Right, who already is being reeled in by the realities of international diplomacy and the need to position and pose your super power so as not to seem weak in the media. He is even on the edge of chossing Putin as a new enemy rather than a potential nationalist ally. Trump though is exactly the way you need to look at what is happening in politics. He was elected not for his mexican, muslim bashing speeches, but because of the ‘economy, stupid!’.

The centre consensus had gone wrong, especially after the left had embraced Neo Liberalist economics of globalisations and courting the corporate might gently and compliantly to boost job creation. The malaise of the last decade in the western countries which most embraced a post industrial, neo liberalist stance is caused not by the creation of ‘free market economics’ but by their destruction. Mega Corporates can launder their profits abroad, while internal start up competition on the ground gets hounded by the tax man at federal and local level. THey lack the might of lawyers, tax accountants and most of all lobbyists in owning politicians and commanding that ‘job creator’ angel like status. Clearly they do not deserve this because they are largely in the rentier area, living off our existences in housing and consumption, and creating a part time, temporary work life for millions of people. In the US and UK in particular, living standards in terms of ‘discretionary’ income, the cash we like to splash once all the bills are paid, is eroded down to actually just being access to credit card ceilings and a life in debt to support the cosey extras we really want out of life. All part of the plan – more money is taken out of the take home pay packet via housing, transport and fuel costs in the fully privatised economy, than is put back in via wage rises and investment in productivity.

The back drop of this is importation from the greatest socialist  Keynsian experiment the planet will ever see, China, and the virtual enslavement of workers in the developing and third world, locked as we are into a cash economy where making ends meet is designed to be near impossible. Chinese central banks underwrite the credit worthiness of their banks and control the cash supply, which Trump rigthfully accuses of being currency manipulation by proxy. They are building a mega efficient infrastructure in a decade which western countries have not equalled in sixty years of post war regeneration and public investment.

The left had been to some extent forced into accepting the Neo Liberal economic philosophy because of the lobbying power of Corporate proponents and because the Media had drifted into buying all the ‘market mechanism’ as sensible means to run society, The left were fooled into thinking that laisez faire , ie give power to the corporates and the super rich establishment, meant that the economy would grow and productivitiy would be a focus of investment, thus workers would benefit through higher rates of employment, upskilling opportunities a plenty and their central governments would recieve burdgeoning  tax revenues in return.

The reverse has been true. Wages have stagnated for average workers and monthly take home pay has fallen for many, and far more are reliant on top up benefits to put bread on the table. The educated middle class ‘yuppies’ and technocrats are faced with huge student debt and eye splittingly high mortgages per square meter in the valleys and cities where there is work. My generation and those younger, have to basically rent their lives and many just don’t make ends meet without money from mum and dad or extensive use of credit. Only if you come from a wealthy, entitled family can you keep your head above water.  We down a triple hopped IPA and vegan bruschetta and try to get on with life.

Blue collar workers in the EU fair better than their US counterparts, where trade unionism is about as persecuted as democracy and religious freedom was under Stalin.  Wages have often fallen due to deunionisatoin, even in super profitable industries like oil. Jobs have indeed been moved out to low cost land, even when US companies were making profits from US factories, the allure of 5% more bottom line is just too great for the corporate accountants and super powerful stock investors.

Enter Trump. He offered something different, hope via market mechanisms, all be those procetionist, America could be offered to be great again, not just corporate on the republican side, or minority lifting on the democrat’s side.  He reached out to a lot of non voters in the blue collar belt, and appealed via his anti intellectual, anti elite stand point. Like the golden edifices of Trump Towers in Manhattan amongst the tasteful, neo gothic and art deco neigbouring billionaire’s buildings, he is more down to earth, more real in fact. He does not dress himself up in sheeps clothing, or use ambiguous platitudes to sooth both sides of the debate. He annoys and challenges everyone in power, all establishments, all percieved knowledge and yet delights many american blue collar voters and small business owners.

Trump is not there because he is a racist, in fact it is a very, very long time ago when he went along with the rather nasty economic tactic of the time, to keep appartment prices up, you appeased racist white collar americans in New York by keeping afro-americans out of their blocks. He is a maverick de luxe though, and not afraid to sweep in a very odd bunch of right wing christians and his own family to his inner circle. These are people to whom he is the prince-maker, and from whom he expects obedience in reward for airing their own views. Trump wants to be King.

All this is a wonder to the media. Finally news so exciting people will perhaps follow the news channels rather than Facebook and Instagram at 6pm each night. They didn’t really put Trump there though, he could buy his platform and be completely unavoidable to the media and the public. However the rest of the Alt Right, the one in five small minded racists with their simplistic solutions did get a voice in the media. The rid us of islam, rid us of immigrants, defend christian values by being un-christian to refugees.

So we have a social media meeting place and then a consolidation into ‘movements’ the “firsts” and so on, and of course Scottish Independence gains greatly through social media connectivity fighting the multi million pound No campaign at the grass roots. However the media have chosen to have attention grabbing, worry making stories about the far right, rather than listen to the centre majority and centre debate, which had become dull and consensual around Neo Liberal globalisation and the move to a completely tertiray economy in the UK bar oil and shale gas.

This is the same media attention grabbing by shifting the debate to unsavoury, minority areas as has happened with climate change, or rather man-created-global-warming as it is to put it in your face.  The media like to give air time to the deniers, because that would seem to be a balanced and fair debate, and their PR companies prime that side for well crafted argumentation. The actual debat is between those who say we will have 10 m sea rise by 2050 and catastrophical destruction of marine life, desertification of today’s semi arrid areas and more mass migration of people, or a more moderate set of effects from global warming which can be alleviated by progressive policy and technology. But that would be giving in to a one sided argument you see.

The trad’ Media, news at ten, etc is failing to attract the attention of younger generations and to appear ‘relevant’ it is biasing the reporting to dialectic – the debating of heated, highly opposed and often reactionary arguments. In the polarised debates they present willingly to capture viewers and appear exciting and relevant, they actually are suceeding in making radical right wing agendas centre stage, and disappearing in their own dark place by allowing freedom of speech and ‘real’ debate they will create less freedom of speech.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New Nations and New Taxations?

We stand at a unique point in modern times when two new western European nations may appear within the next five years.
New nations, Catalonia and Scotland, demand new solutions and they could well look at the balance between taxes, labour policy and welfare spending through new eyes and adopt novel approaches.

The Taxing Question…..

Traditional Neo Conservative theory states that the lower the taxes, the greater the growth in the economy and the greater the wealth of all in society. In reality all capitalist economies are actually characterised by trickle up. Capitalism is the accumulation of wealth in capital hands, be that an expanding number of citizens or not in society.

On the other hand traditional democratic socialist theory states that this accumulation of wealth in few hands is a process which inevitably empoverishes the proletariat. High taxes on the highest incomes are the best means of addressing this imbalance because the accumulative, pyramid of wealth. On the plus side for the economy in olden days, the super rich were rather nationalistic and country bound and had to work harder to make their cash it could be said, and you can see that effect today in oil lake economies like Norway and Saudi Arabia where the super rich need to invest a lot to avoid taxes and to make money.

However of course in reality these two extremes within parliamentary societies have too much of a down side. Enter then the social democratic parties: modern labour parties in Scandinavia, the Democrats in the USA and the other social democrats and watered down socialists around the world. They have adopted in fact a Neo Liberal model for a growing, enterprise economy with moderate taxation. So they want the best from Capitalism in growing the overall economy, while skimming off enough tax from that to pay for  what are socialist welfare policies.

Things Fall Apart……

The trouble is that Capitalism evolves in odd, irrational ways in its pursuit of the multiplication and accumulation of wealth. Both in the 1929 and the financial credit crash of 2008, it fell upon its own sword of freedom, when that became anarchy and a bubble of deciet and lies which imploded. I am sure Trivsky and Kehnann were born at exactly the wrong period between these two events to have actually helped hinder them or inform us on why they happened from their Ivory towers.

Also the trouble with even tame social democratic public spending and welfare state programmes is that they are victim to vagiaries of the current day economy and worst of all the demographics of ageing populations in the west. Only the oil economies can salt away enough money to span any slow downs in the economy, or address actually having a national pension fund.

Forward to the latter paragraph, it seems Sweden and the UK are doom sayers in respect of their envied welfare states due to these factors- lack lustre economic growth over the two decades where the current pensioners worked out their years, and new workers didn’t increase GDP enough. This however is how you want to frame it. You can say that these economies are so large today, that the modest Neo Liberal period growth is actually larger in real terms that those of the 1950s and even 60s. If you take some forms of inflation, RPI/CPI , then also you can say that we have a situation where two to three percent growth is worth a multiple equivalent to the best years. However taxation is far lower. So we need to cut tax to stimulate the economy to bring in more tax to pay for a given level, which is cut anyway.

The net result is these economies hitting the buffers of dissatisifaction. A good proportion of society who own businesses or fluid capital assets have done wonderfully well from both social democracy and centre right coalitions across Europe. However very many were not doing all that well, with mediocre wage rises in the face of real inflation in real living costs far outstripping CPI. Today we only spend about a fith of our income maximum on goods and produce covered in the CPI (former RPI)  contra the days when we used about a third on it. So we could have far higher retail price inflation without it making as much a difference as the main costs which are housing, transport, and grouped together university debt and vanity. More of us went to university and now we demand nicer, posher toys than before. 900 pounds for a phone with some games on it? Are you mad they would have said in 1980.

Dissatisfaction is high with the status quo, across many countries, but those with the most right wing controlled media funnily enough manage to spring radical policies which lead to as much uncertainty as they do create clarity. Simple solutions which offer change, when the status quo is a higher risk option. That is why Hilary failed, and why Remain failed.

Optimising Tax to Maximise Revenue 

There is of course an area of equillibrium when it comes to income tax and any taxes related to those who sit on investments and property, or just live in a huge pile in the countryside while only paying nominal local rates.

Tax too hard and people avoid paying it, tax too little and you loose income which in fact you do not make up in VAT and economic growth when it concerns the top 30% of salaried workers or the super rich. They just do not spend a multiple of what an ordinary person spends in the economy, and more often they affect the property market via investment in buy to rent or business property, which is an inflationary pressure to the rest of us hoi palloi.

However higher rate tax payers make up a very large proportion of total income tax revenues for the UK exchequor. How much and how that then relates to total taxation is not somethign I remember off hand. But you have to take into account that these salaried folk on  60  grand or more are by number biased to the public sector. GPs earn now around 100,000 pounds, the same for various ranks in the armed forces and senior civil servants. We then also have armies of consultants working for enterprise bodies and other parts of government, hospitals included. So a very large amnount of that money, ourside the city of london and the North Sea, is circulative!

Under the Thatcher years the Neo Liberal doctrine seemed to be working very well, because in fact total tax returns grew markedly. However if we subtract North Sea oil and the effects of BIg Bang on the CIty, and the revenues from privatisation, we get a different picture. It still shows that revenue went up, in line with earnigns. Yet if you take income tax alone what happened? It is more unclear. If we look at VAT which is the Tories’ favourite sneek tax, was the UK actually taxing credit card purchases ?

Luckily England has The City and its regional ring effects via institutions and banks like the Norwich Union and so on, down the the IFAs who sell the lions share of financial products to consumers and businesses. Luckily too Scotland has a slice of this investment ‘over spill’ and the North Sea where average wages are twice the national average wage.

There is then a line where discretionary income rises to when consumers would have to have very lavish lifestyles to spend that money, and being Scots, many of the highest paid are canny and perhaps looking at early retirement, or investing in property and trust funds for their offspring rather than in consumption and investment in productive enterprises. Here we come into the leverage effects raised by Nick Hanauer and Warren Buffet. Also that it has become so attractive to invest in the ‘rentier’ side of the service and property economy rather than in production or value adding processes.

Investing in Productive Enterprises, Personal Well Being and Value Adding Services

There is a line between where the ‘rentier’ economy based on property and services which we all need, and that which multiplies value or adds a distinct value to society which assists our productivity, output or just well being and health.

In the rush to deregulate financial markets, investments and businesses the UK has missed a big trick in not realising that rentier economic investment is inflationary and reduced productivity in society as a whole as a net result of being in  a lean efficiency, and maximising prices that can be extorted in a captive market. We see too much price parity and ‘cost plus profit plus admin’ financial models for the private utilities and even within retail.

A future Scotland or Catalonia could do well to examine how taxation is differentiated between productive activities and the rentier economy. There is no fine line between ‘services’ and ‘manufacturing’ in reality. Service engineering – refurbishment and upgrades, are now worth more than new build in the North Sea sector for example. Where does an ordinary car mechanic’s business fall? Is a health provider adding value to society?

Business rates are a contentious area too in respect of this. WHy should a retailer with low wage, low skill, part time workers get to pay the same per square meter as a factory with high productivity, and skilled, full time and well paid workers? Why should a small service engineering enterprise feel hindered by the cost loading of new, larger premises?  Why should a slum landlord pay the same as a research laboratory for the same area they own?

 

New Models In New Countries

So we have two wealthy, productive regions of two kingdoms based on unions of member states, forced, humiliated or negotiated into the ‘greater good’ hundreds of years ago. I dare say Catalonia has had its share of ups and downs, but like Scotland it is an area where very much primary production takes place, and there is then sizeable secondary and large tertiary (service) economies.

They could well consider the dissatisfaction of the ordinary worker with the status quo which is driving the thirst for independence in both these regional states. Just as importantly, they should consider what is good about business conditions and new enterprise creation. They have a unique possibility to shape a novel tax environment.

Punitive Taxes Don’t Work

The trounble with the simplistic solution ‘ tax the rich and spend on the poor’ is several fold. Firstly punitive taxes disuade inward investment ?  Well that is percieved wisdom at least. The SNP had as a cunning plan an 18% corporation tax to undercut the UK (and the USA incidentally) level and retain current businesses, help some locate HQs or administration N. of the Border, and attract new enterprises. Who cares how much Bill gates makes if he invests in Barcelona? Here in lies the second issue, that punitive personal taxes politicise the wealthy who organise themselves. Well nothing new with that. This is what predates democratic parliament in the UK and most other European states, and plutocracy was the predecessor of democracy in Ancient Greece. It is a question today of how vehemently they get politicised and who they are prepared to employ to ‘persuade in the new soundbite, viral internet spread sound bite and 15 nano seconds of fame.

Very high income taxes or taxes on personal wealth then are counter productive over time. Yes you can squeeze more internal investment out of encumbants who work harder to make money, or have made so much that they are more interested in building something than how much it makes them, You could say Trump is like this, with some interesting but failed side lines like Trump Air. Also the big Scandinavian dynasties have had a paternal interest in their home lands, until their grand children lost interest at least.

These days there is far more money in real estate and money itself that industrial moguls who employ hundreds of thousands in their home lands are consigned to Korea, India and China. This is really what was behind 1929 and 2008, capitalism got too used to the fruits of the casino rather than production. However today the world’s richest 8 or 10 if you like, are mostly software giants. Warren Buffet is a corporate raider of course, but built as many as he raped I am told. He gives away much of his income anyway. You have Bill Gates of course, and Larry from Oracle and then vrious upstarts. Not the cigar puffing, guffawing evil capitalist like you could paint Henry Ford perhaps.

Investment though has to be considered more in terms of productivity. Inward investment in the UK and Scandinavia is all too often that which is Rentier- it wants to buy up internal service sectors in the economy rather than build on primary production and value multiplication in the secondary economy.

That is one key to the new countries’ taxation of business,  but it is argued that this bias is complex. I don’t see that as true, but rather a polticially biased view point that is self serving for the easy life of Rentier investors.

New Taxes Hinder the Economy –Thinking Administration and Regulation Rather Than Just Tax Level

Business is always lauded as complaining about regulations. Very many businesses though have their own internal torturous beaurocracies to ends such as quality documentation or transparecny of accounting which exceed government demands and rather pander to customers and investors. It is not the understanding of regulations, and their effects of level-playing-field intentions, or accident prevention, it is the administration time in complying which businesses and especially SME businesses moan about. In fact many of them enable smaller companies to accept a defined framework of quality and safety, which in turn permits them to trade with large international corporations or governments.

Yet businesses of course want to be productive and not administrative by nature and goal. In my latter day profession as a supply chain manager, I am reminded by my mentors and institute that administration is the theif of time and opportunity to do proper purchasing, logistics and stocking. A single invoice, correctly presented, can cost a Norwegain company almost 50 quid to approve and pay when presented in paper form and the vast majority I get at work are still snail mail ! Reducing tax and employee administration frees up companies to do more enterprise, more endeavour, to use their grey matter on something more than a business process auto pilot.

New taxes for consumers, such as the local levvy in Scotland, also come with a tax collection cost and at some point a burden on businesses in many cases. It is easier to simplify tax affairs for both individuals, small businesses and productive enterprises and raise those simple taxes by percent points than try to sneek in new taxes. Environmental levvies and taxes are also a costly means to affect change, we are better investing for example in cleaner energy production as we do, and also a network of fast chargers for electric cars and delivery vehicles which would transform any nation’s emissions. The internatl combustion engine is the worst offender by far. Electric vehicles are now a fully practical proposition for the vast majority of consumer use.

So here comes my own suggestion for the Caledon and the Catalan: 

Shift administration of employee taxation out to the banks and government. Here then an employer still pays those unpopular hidden taxes and national insurance, but just as a flat rate lump sum on top of wages. This is in part the system in Scandinavia and of course in part true of the USA.

We have then the opportinity in the digital age for the bank to take a small fee to manage the tax affairs and of course, abide the laws, regarding income tax and national health and welfare insurance contributions, but also we simplify greatly the tax return set up for individuals. This is how in fact it is done today in Norway, and despite some torturous property taxes and imaginative areas for deductions for people with fours sheep and a pine tree, it works a treat between the banks, other lenders, employers, employees and the tax-man.

Housing and Transport / The Two Big Inflationary Pressures on Most Workers

Second to this above, we have an opportunity to reshape taxation for those exposed most to the infaltionary pressures of real life. Firstly as we still have in Norway, we should allow home owners with modest, average mortgages on their residential home, *and that is crucial* ,  interest rate relief on their mortgages. MIRAS. Further to this, in order to tempt people away from very high leverages on interest only periods, we should reward modest capital repayments.

We then in the interests of the evironment should allow deduction via tax allowance extension on things like commuting on public transport with season tickets, investing in green homes and green improvements, and in electric cars. Also things that help you get into work, like if you have to commute away all week for a new job.

All the above are present in Scandinavian tax systems. In the UK to address inflation in the housing market, they introduced an inflationary first time buyers underwritten deposit loans scheme. It helped a lot of even highly paid people get their first house in the South East of England at least, but stoked the market at a time when wages were falling in real terms or people had less hours pay. More on housing later.

Can We Strike a New Balance Between Tax for Public and Deduct for Your Own Choice?

On the personal side we should be looking at  balance between private and public provision. So for example a privat health care plan often helps with minor ailments or new chronic disease, but in Europe they dont often want to insure or plan for chronic disease, and they dont offer an emergency ambulance and A&E department. So we can reward some of private health plan and insurance via tax deductions, while not making that ridiculous means of spiting the government.

The same is true of infant child care and after school – can these be best done privately or do we benefit from economies of scale via taxation and public provision? We legistlate with some common sense, so in the cities and larger towns with bigger schools and tighter pre school habitation we make it a harder opt out for tax., while in small towns and rural areas we allow for more provision by small enterprises, which is in fact the reverse of much of the current scandinavian model, where kindtergarten is big business in the cities and parents have a very high self payment on top of high tax.

That is where the debate can lie for many social welfare, we give an option to the individual or a means for market provision and offer a level of tax relief which compensates for good, modest services. 
We have this type of set up where parents with kids under 18 get larger tax allowances (initial large deduction from salary prior to taxation)  for having kids, such that consumption need is addressed. However is it such that older folk should pay for this? Or that folk in the middle age should pay more tax for both young families and pensioners to enjoy welfare goodies? That is I am afraid a fact of life, as why should a pacifist pay for the military or why should a famer pay for a new harbour?

We have some areas where we can offer a better public service for a higher direct tax, and enjoy economies of scale, and a little at odds to that,  even quality of provision geographically, and that is fair. It is equitable. But also it is equitable to compensate those who seek private provision which will save the state money of course, inthat they take up services outside the public sector.

This is how in part the EU pensions directive works, but it is not all that popular with some types of employers, and it penalises temporary workers, and some argeu due to the admin burden, it makes temporary employment more attractive. However you could have a better situation likie in Norway where PAYE pension can be propped up in lower income times, and small EU directive pensions like I have, can be consolidated to PAYE pots, which I am about to do! Tax relief on the employee rather than compulsion at the employer on private, a basic PAYE pension contribution and the option to enter that set up during times of temporary work or lower net pay. In Norway you see your pension funds state and private, digital magic, and can make informed decisions about this very set up, and look at outcomes from different risk levels in private pensions. Norway of course does have a state pension fund, but more on that dream of Salmond later.

Employment Patterns  Must Change

As mentioned with pensions, employers like to avoid paying for employees and administrating social type things for them and the government. In nearly all EU / EEA countries we see that the major problem for a large part of the work force is not unemployment but UNDEREMPLOYMENT. Too many part time, temporary jobs and too many graduates not working in their field. The latter is about right-sizing the education system, and removing the ‘consumer’ marketism from the school leaver and tyring to inject far more from the employer and job market end instead.

The former requires some blunt action really, because we cannot have three people doing a job which would make a very nice living for one person in that week or those two years of a project. Why? Because they go begging to the state, or rather the state incentivices them to carry on in this, while employers avoid on top costs. As above I say send it to the banks for admin and the tax office can have big clever computers to talk with the banks ones. Catalonia and Scotland are right sized and right banked to do this.

There is always going to be an element of supply and demand for part time work in economies which have become more tertiary in nature, but it is used both as a way out of admin and as a tool against workers themselves, pitting them against each other for a marginal lifesyle supported by the state. The source of the very low productivtiy rate in the UK, and the very high number of people in work but in reciept of benefits is here.

We need to introduce new employment laws alongside a pro-rate social cost rate per hour. Workers should have the right to ‘permanency’ as in a contract of work which rewards their loyalty and specific skill investment with better terms for in particular, tenure of employment. It is fine for employers to still have part time staff with some way of avoding zero hours abuses,  and temporary staff on defined contracts, but then there is a draw from those better employers who want to reward loyalty. Already there is talk of a revolution mediated by mobile apps, where even accountants are hired in on zero hours contracts.

That last phenomenon will be devastating for the economy when more employers become in-contractors , heaving more people on to top up benefits and out into abject poverty. In the long run it will prove inflationary as workers with scarcer skills are able to extort high hourly rates as they become used to negotiating each hour and trying to make a living playing hard ball with in-contracters. We only have to see the effects of underemployment today and what it costs, or the social unrest that a shift such as this will cause as it has down through history, when security of tenure of labour lead to the whole union movement in the first place.

Flexibility must always be there, you cannot say to a small cafe that they need to employ people 37 hours a week and pay a pension, but you can make the cost per hour pro rata the same as the cost of a full time, permnanent employee and remove that discrepancy which drives employers to utilise more part time statff than they otherwise would need to. I would go so far as to make employers do morre of the administration for part time workers to unload the banks and make it even more atttractive to consider full time, on contract workers. Then work really does pay because, ahem, it is paying all the time. The state makes a big gain by having fewer transient and marginal workers to pay benefits to, and some of the saving is passed onto the employer in lower ‘social cost’ per hour-  for a 37.5 hour week that is, 37.5 times as much as a one hour saturday or breakfast helper would cost, or even a lower multiple.

Minimum national earning levels are a bit of a red herring in Scotland, and maybe suit the oddities of the Finns better. Moving people into more solid work as a culture for it, is far more preferable for those employees, the tax man and quite likely those employers will also find productivity gains from staff who have that good old 9 to 5 franchise with work, and dont shuffle in for two hours back shift, worried about paying their bus fare home or if they have worked too much for benefits that week.

Once again we see in these top up benefits, the Neo Liberal influence on the left, who dare not interfere  with what looks like market mechanisms and demand for part time workers in a ‘dynamic’ economy, when in fact it perverts the market and affects producivity in GDP as a net result. Combined with go-to-china, the Democrats and other social dems around the old west have generated the large scale social dissatisfaction which lead to change via trump and brexit. Work does not pay anymore for a large proportion of the work force.

Property – A Farier Market Via Which Mechanisms?

Here I shall wrap up where I almost started. We have in the western property markets by in large a sickness of capital investing in extracting gains and profits from housing we all need rather than in making our lot better via investing in productive systems and companies. This is also a generation shift thing, with the baby boomers able to lever second, third, multiple properties in the buy to rent sector, or just having a dormant summer house lying there 8 months of the year.

 

Housing cost inflation is the single thing which makes the actual agreed economic measure of retail based inflation calculation so laughable. We could endure CPIs of nine percent a year for three years without it actually hurting us much, we spend so much more on housing from our incomes. We spend also more money for a lot less property, will make on average less capital gains than the baby boomers and many of us will die with mortgage arears it is feared. Average age of first ownership goes ever upwards it seems, reaching towards 37 in London and the SE.

We all know this is a problem, yet a large proportion of the older electorate benefit from the capital gains the over heated, under supplied market delivers to them and polticians dare not go there with significantly higher taxation.

Very simply we need to look at removing any incentives for second properties for individuals and tieing more housing into the affordable bracket, while also removing green belt in central Scotland.  We also need to look at taxes on secondary properties and a degree of rent controls, especially for ‘social tennants’ the state has to foot the bill for. Why subsidise a ‘market rent’, that is an oxymoron.

Once again punitive taxes on mansions this time, may be a side show. If yes you want to stop Russians laundering money or the super rich avoiding tax somehow by owning a country pile with farm estates, then tax higher. The shift though is quite small, and it is actually higher paid public employees who will end up paying the brunt of rates rises in Scotland I believe.

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There we have a little pot boiler for you which looks at some of the pragmatic and some of the radical based on my own experiences and opinions.

 

Brexit and the BMW Fallacy

The main strategy in the ‘new, better, free-er deal with the EU’ is of course give us as free access as possible or we’ll burn you BMWs. Figuratively speaking. The UK accounts for 17% of BMW sales we are told. This is just one of the main thousand of market opportunities the EU won’t want to lose, we’re laughing at them ! Ha Ha!

Well he who laughs last, laughs loudest. Or maybe just tuts and lets little britain default to WTO rules. Firstly any targeted, high value product approach faces instant retaliation. Salmon, luxury cheeses and not in the least of course UK luxury cars themselves who probably have more than 17% of their sales from the EU. This isn’t going to be such a titt-for-tatt negotiation, although that would be the threat, the fall back ‘no deal is a better deal’, which is in reality Russian roulette for the economy.

Second up on that point on ending up hurting your own economy, take those high value BMWs. They steal all other manufacturers top models with their base models holding more kudos and being in the opinion of many, over priced and under spec’ed. They sell a lot of base models of the 116 series, the new 200 and the redoubtable 3 and 5. The flasher 6 and 8 cyclinder “mow-tas” drag up the brand perception, and earn nice margin. So you would think the Munchen Smugbach would be terrified of the potential loss. Well who is making the biggest lost? Over 50% of the cost of a new BMW goes between the dealer in the UK, and of course in taxes to the exchequor. Being higher value, the chancellor makes more out of them than the Ford range say.

Now we get onto supply chain and life cycle. BMWs are very, very expensive to service although you do get treated like a king at the dealer of course. The lifcycle of ten to fifteen services not only costs  most all the purchase value of the car, it also takes more man hours to fix than to make. And those man hours, pretty highly paid auto-technicians as grease monkeys are called these days, so they do well and the exchequor does well out of full time employees in the service sector, a rare thing perhaps.

So what the WTO would just impose a 10% tariff or the like. Well the EU could vote to have a higher tariff on UK cars, or block their export due to May’s offer to pay the tariff, which is against both WTO and EU rules, and the US won’t like that one bit even if their consumers are interested in Sub Compact SUVs made in Sunderland. BMWs will cost more due to tariffs, the pound may get weaker in a default to WTO and then they cost even more. The EU on the other hand may seek to compensate the manufacturers for loss of market due to unforseen disruption, which may be inside the WTO rules and would be voted for by an EU seeking to not quite punish the UK, but soften the blow they get internally from the pain the UK thinks it is going to impose.

 

Now we move onto supply chains. In particular car manufacturing, electronics, defence and then that very staple of living, food. Disruptions to costs are here already due to the weakened pound. Next we have suppliers actively seeking new markets from this day onwards for their produce, or seeking to vertically integrate to increase value to make up for the loss of volume. The CAP is believe it or not, moving towards a free market for produce, as we see the hurt for the UK dairy cattle farmers. Much maligned for its lakes and mountains of wine and cheese, milk and corn, it was based on the 1950s model of standing up to a soviet attack and feeding our people. It has moved away to what are still complex rules “single farm payments” being the outcome.

Maybe UK farmers will find it a lot easier to operate and sell their produce in the UK, but as with milk today, maybe they will find that supply starts to outstrip demand and that there is not such a big domestic market for the value added produce they export from small and medium sized farms and food processor companies today. Some of those UK processors are reliant on cheap imports of commodities and specialities, or a low price on the common market for local supply. Some of their products will become more expensive for the UK consumer, and exports will perhaps dry up in a trade war.

Comp0nents are the same as food in that respect. Higher prices and of course any delays in deliveries caused by longer customs queues at the ports. Rare components and materials may in fact be withheld by the EU to favour their suppliers first, and the source may see that as sensible, cutting out the UK. Anything that upsets a modern factoryu with just-in-time delivery and lean supply means that money is lost. Also the same is true in delivery to EU customers or export routes.

Then we get onto the real reason for Brexit, immigration or rather freedom of movement of labour. A “simple work permit system” which allows the uk to “get the talent it needs” is not a great thing for securing labour on the spot, for the season, or when actually competing for rare skills. The weak pound works against the UK as an attractive place to work, while of course the sky high costs of housing and transport also erode that little send-home profit margin Poles and other migrant or relocated workers make. The reason there came so many of these people was not because they were looking for a tawdry life on benefits, they were wanting to work and get cash. Live five to a caravan, not go out at the weekends, get two maybe three jobs. Money plain and simple. It will take the UK a very long time to make up skills if there is any real incentive to train and for young people to go into debt chasing training for quite low paid jobs with what they see ans antisocial conditions, such as fish processing or picking crops.

By intention of course , post brexit policy on immigration will create a shift  of poorer, lower skilled workers back to the EU over time, so those UK workers without any real skills who have been ‘precarious’ in and out of benefits and top ups, will stand a little more on their own two feet. However threats on quotas and tax tariffs per head, disclosures and protests outside ‘named and shamed’ companies is likely to put a stop on inward location and a lot of investment. Once you give the mob a good simplisitic, economic argument based on xenophobia and excluding those xeno-workers,  it tends to run off in the worst possible directions.

In the new global corporate wage and conditions climate which will now rush into the UK, in “deregulating the labour market”, better skilled UK workers in those “cube farm offices”  will find that that promise of better pay from a tighter labour market is replaced by the price parity with back room agreements against wage rises, and 12 hour day, no over time, of the USA system. ( You read it here folks). White van man will not be happy about autonomous vehicles either, hastened by the acceptance of USA regulations over EU caution on the technology.

The final point is what does the UK consumer say, and who voted in Brexit. UK consumers are not going to enjoy this year’s round of exchange rate driven inflation, coupled to more austerity in the public sector pay and employment suppressing private sector wages too. Putting up the price of a beloved BMW; the birth right of middle management, by 20% will be less popular again in light of flat wages. Immigration is in the very back of people’s minds by 202o, and the common market solution is what they want to be reaching for.

Political strategies are often to talk really hard, tough and far and then back down to a compromise which is actually futher than the opposition would have allowed you to go, or is a necessary, pragmatic fall back position which saves the UK, while behind the scenes major shifts in worker’s rights, the privatisation of the health service and more austerity have been implemented during the confusion while of course, the media attention is on the trade deal. I predict the common market re-entry by 2020.

 

 

 

 

The Stagnant Millenial Generation?

People are starting to wake up to what economists have described for at least the last 160 years if not more. That wealth is inevitably accumulated up over, and in times of relative recession (low growth or negative growth) wages stagnate and are eroded by inflation.

It is not the big nasty, top hat wearing, cigar toting capitalists who are really to blame for this in the UK and many other countries. It is those darned post war baby boomers.

This recent BBC article is one of many you can find on the internet from both sides of the atlantic and as far away as Australia and NZ, and if you cared to look at this in other EU languages I dare say you would find the same phenomenon. The older generation currently in ‘peri-retiral’ have run off with all the goodies and aren’t giving them up any time soon.

 

Very many of them have worked their way up in to management now, or have successful businesses which can lever out new whipper snappers with credibility or a plain old price war they can survive. Many are in fact enjoying work so much that they are postponing any ideas of early retirement, so common in the previous generation reaching retirement in the 80s and 90s, and are even staying in jobs beyond 67! As demands are place upon companies to increase productivity, down size and out source to cheaper labour, they are aiding and abetting this which affects young and unskilled workers the hardest. The baby boomers are keen to keep their positions of power and will go with the flow of downsizing, something they have good experience with too from the slash abd burn during privatisation of utilities etc in the late 20th C.

So they have accumulated an ounce of power or two in the work place and are able to survive effectivisation by being the managers who pull it off. However they are not just ‘epistatic’ , standing upon the younger generations in terms of the work place and stiflign promotion prospects while encouraging out-sourcing to the hard and bitter end of the labour market. They own all the property.

 

Not only does this generation of post war luckies own their own houses, and have a capital proportion often outright, they are remortgaging for the lucrative buy-to-rent, which puts more pressure on the market for first time buyers in smaller properties, and even semi detached houses where multi occupier rental is accepted by the banks for a second mortgage based on equity release.

Also they are not down sizing any time soon. They are used to a high material standard of living and are likely to keep those grand houses with extra bedrooms such that their children can visit or move home when they are made redundant of course. On one side in fact housing is not such a big pay off relative to pensions when you spread out the equity which is released, while on the other those desirable area, smaller properties are in that lucrative buy-to-rent market which erodes their potential equity release more.

We have an imbalance between inflation in not just the cost of real estate, brown or green. Yes we could and are freeing up greenbelt and legislating affordable homes, key worker appartments and even some place owner-occupier covenants, but the cost of building has escalated. The average new build in the UK in materials and labour is well in excess of £120,000 and that is before the ground is paid for or estate agents marketing fees are put on, and the profit the developer expects is around 20%.  Flats are just as bad, where the cost of build is relatively high per sqaure meter due to the larger scale required in site equipment costs and foundations, supporting walls, stair wells and roofing. Often flats are built in urban areas or along suburban transport routes, so they are subject to high land prices, especially when local councils are (ahem) a bit careful with planning applications , that is to ask, are there meetings at the masonic hall to discuss how much land and what type of building is desirable to hold prices up?

Wages have in no way kept up with house price inflation, and what has happened is that a far greater proportion of disposable income goes to the basics of living than it did in the 1970s when the baby boomers had free reign to buy those two-ups’ on even below average wages. The fundamental disconnect has happened because the baby boomers have built their own quasi pyramid selling scheme, based on capital in their houses and leverage from loans when they release equity and upsize or gentrify new urban areas.

You can forsee that there is a ticking time bomb for the economy which kind of solves itself by market mechanisms. The baby boomers are not as healthy a generation than their war time parents and are likely to both live shorter lives (mortality) while also not enjoying as good health (morbidity) according to several studies. They are the group of working age now, most likely to be life long smokers and to have given up regular exercise. So from about the magical 2028 onward, when a large proportion of baby boomers come over 75 years old, we are going to see more sudden deaths possibly and more nursing home hospitalisation, plus the need to move out of two up-two downs into single level accomodation and sheltered housing.

This natural senility could mean a flood of established property onto the market. However since buy-to-rent is so popular and unrestricted, it could be that a new predatory investor comes in, as has happened in Austalia. The chinese global property investor has so much cash that if they see that capital value can be upheld and loans paid off from rents, then they may invest en masse in UK two up two downs and bigger villas and bungalows. Perhaps there needs to be owner-occupier legislation to hinder that global investors reap this harvest rather than the natural, national succession to the collective ancesterol pile.

Back to jobs though, and in the shorter term we do then see a crash very likely as the wave of new retirees hits the beach in 2020 when a large proportion will retire of those born 1950-1955, the baby boomers. Also we can see changes in the methodology and mechanics of work pushing older employees out to pasture as more modern IT savvy management swings into the board room and seeks to sweep away old empires built on pushing paper. So we have a very big shift in front of us in many western countries as those people who have ‘hogged’ jobs for up to 20 years in many cases, especially in the public sector.

This isn’t just a trickle down in the job market, it is a sea-change. It is quite an abrupt exit stage left of hundreds of thousands of managers, gaffers, techocrats and semi skilled folk too. For millenials this bodes perhaps well, with their numbers being lower than school leavers and graduates of yor. However the baby boom actually is strung out if you look at the figures, and can be said to have lasted into the late 1970s when suddenly thereafter, we see a decline in the older fashioned family life, with a disrputive economy and more women seeking careers.  Millenials are babies to parents who were born themselves of that last homely period with 2.4 kids in the 1970s. The average now is decling from 1.7 at last national census btw. Now they are my generation, and we have often struggled in the face of the baby boomers going along with all the down sizing and privatisations reducing wages for us, and even worse for millenials today relative to the real costs of living.

Our generation are next in line for senior management, and unfortunately for millenials, all the mechanisms of countering corporate inflation will accelerate because my generation is IT literate.  We are under threat from an even more IT literate Generation X, who have that lovely coding experience on those web sites, ERP systems and laterly apps, which millenials lack solid and CV credibility from despite being on average, more IT savvy. Millenials often have patchy and weak CVs where the highest quality experience comes from work placements rather than jobs they actually secured, which are themselves part time in low level service like retail and catering. We the 60s and 70s babies on the tail of the boom, will take up all those cushy college and university lecturer positions, professorships, senior civil servants, senior partner, planner, gaffer and general boss positions.

Generation X had it in my opinion, a lot better despite there being a pretty mediocre promotion market in the 1990s as companies by in large down sized middle management out of the picture. Gen X had a different, experiential and self confident approach to life than my generation’s rather formulaic following in our parents footstepts or taking their advice on getting a degree for gods sake. Many Xers shunned traditional routes to employment, and found their wander lust, super self confident, happy go lucky attitueds made them fit in in new service companies, or seek out practical job experiences thoruhg their social network. They became the now time Hipster with the small craft beer and sandwich business, they became the lucky under qualified managers in the internet and app companies, they took up skills in building and other areas where a good buck is to be made as self employed punters.

Millenials were under the cosh from their late baby boomer, older, and more cynical parents at the time when they were born to parents of the 1960s and 70s generation. Society placed even more pressure for academic performance, while delivering even fewer jobs for graduates now. They have three generations of adults above them who are looking to oursource and hire in the cheapest labour possible so as to take a bigger cut in their part of the supply chain, and they have a super ready supply of willing and easily disposable youngsters. They are vicitms of margin maximisation imposed by older, cycnical generations.

Trump and Brexit are symptoms of the end of the Neo Liberal, “let them eat cake ” epoch which has delivered such inequality across class and now generations. The generation sitting in power now are on the one hand desperate to hold on to power, while on the other they want to avoid the dreaded signs of inflation which wage demands could impose on the economy in their eyes. They are blind to the true level of inflation for younger generations in the real cost of living. Also blind to the threat in the housing market in particular that this poses with an ageing generation.

Trump and Brexit voters are not who some people think they are. In fact they are working class, whom are disatisfied with globalisation because it is has eroded their standard of living and job security. Unlike subsequent generations, they remember the super inflationary 1970s so see keynsian solutions as leading to that grizzly end, and have by in large bought into many of the concepts of the ‘free market being good, labour laws and unions are bad’. Millenials and gen Xers have no such relationship to the more left wing past, and stand only to learn from the last three decades of erosion of wages for the majority of younger workers. Expect some politicisation old timers!

 

The Uber-Gig Economy: Threats, Opportunities and Tautologies of Economic Theory versus Reality

To many in traditional jobs and labour organisations, the Uber-Gig economy where we increasingly buy services from each other rather than companies, seems to offer more threat and doom than any benefits. To the Friedman far right free marketists, it represents the ultimate move to a free society where all are rewarded fairly. What is the reality of this new focus in the economy? How will we be effected?

As with most things in economics, the gigs themselves at the granular level have to be viable and sustainable in order for them to work for the larger macro economic headlines. It means that people will consider their own personal profitability and time management more directly in relation to the end consumer or paying partner.

Is this something radically new? No not at all, it is as old as the oldest economic transaction in the book. Even into the 1980s there were many hand workers in the UK who went under the “SE60” tax code who hired themselves into employers on an hourly or other contractual basis, and had their basic income tax payed there and then by the employer, while they enjoyed tax deductions for things like travel and tools. Far too much like people’s capitalism, it was ironically the Tories did away with it. There has also always been a degree of casual labour in the market, and “Air BnB” is an ageold phenomenon in fact. What has changed are the media channels and facilitating marketing and administration.

Suddenly new technology has dawned on a lot more people, and what is now emergening are new market places which enable customer to meet supplier. This was all possible within the first days of the world wide web in fact, but it has taken time because the technology needs to be at such an amenable level that a large market is willing to use it. Also those infrastrutures need to be branded – they need to be trustworthy in that they need to be seen at least as offering something honest, reliable and safe. Essentially it ie the economy of scale in having a large marketing and payment apparatus which builds the brand versus a plethora of SME web sites. Like Google and Youtube, Uber and Air’ have very simple propositions, yet they use large servers and programming might to get these to reach many, have total uptime and be efficient per transaction as a mediating technology with a price.

Will these platforms completely replace traditional employment? It seems that is indeed a likelihood with almost complete penetration of mobile device technology in so many economies. Free market ideology and a trend towards part time, temporary work in the west would go along with the concept of this replacing much of how we work today. However we don’t have to see it as being something which companies necessarily cherish as opportunity or find particularly productive.

Have a mental tour through many people’s lives who are more tech savvy and likely to take up this technology. Often graduates, they find their education offers little real leverage and application in the labour market and end up stringing together an extension of service industry jobs they had as students. Now they can maybe do  three to five main entry level economic activities- drive, deliver, data enter, take serve food, non skilled and a mixed bag of personal services. On the down side of the Uber-gig they may have to wait around for a customer opportunity or casual hour working in a bar to come along. On the upside they are in a position to negotiate their price when the facilitating system allows for this. They can also withdraw their labour more easily from times and locations which are less profitable or go on a loss, rather than feeling they have to turn up and do short, unprofitable hours in order to be on the employed pay books. Also they can tactically withdraw their labour such that low demand period prices rise, and surge pricing when demand even slighly outstrips supply can be exploited. So if they drive Uber then they just dont make themselves available at low price, low demand times and find one of those other basic things they can do instead which has higher margin for that period of the day.

Another current opportunity is that the employee in a trad’job,  starts to use some of their time outside work within this high value and/or surge demand. It is much more easily facilitated and they can avoid ‘double commuting’ to say a job in a bar in the city centre, by driving Miss Daisy or delivering some products, or checking that Miss Daisy hasn’t fallen out of bed and has eaten her dinner. Also new skills in computing in particular, or social media selling, which they pick up in employed work can more rapidly be converted to opportunities for extra income and eventually form the core of good business models for a new enterprise to flourish.

There are however many, many down sides. Firstly and foremost we go back to the facilitating brands, and on the internet there tends to be one big winner over time (google vs yahoo, youtube vs vimeo, amazon vs a.n.other ) because internet brands work a little differently than traditional market brands. THere is more immediate trust through experience of direct consumption, versus the fragmented internet offerings and there is more of a centre of gravity from suppliers and content as a mutual exacerbative effect in this equation. So the facilitating branded apparatus may take too much of the cake, and start to organise labour itself such that pricing is more consistent and trust worthy, or those who actively withdraw labour in low periods get de-listed in preference for those with up time. Kind of the reverse of the philosophy but all dooable with algorythmic precision. At some point the customer becomes much more important thatn the suppliers and the middle man, as awlays, wins over those who actually do the job.

However these brands do change over time in market share and prominence, and you can say that Google and Amazon are yesterday’s brands offering the simplist experiences and trades. Twitter has active competition from Snap Chat and a couple of other apps for example, they are no longer the dominant brand in that kind of perishable, short content media. Facebook is eroded in value by these other comm’s brands too.  The nature of supply here is then the most crucial point, and how it actually balances out and can choose to use different facilitator brands, or indeed cut out the brands by building local, direct contact customers or local “craft” brands which offer differentiated quality from the big sites and apps.

There is a big difference in attittude between the ordinary low level worker and the Uber Gigger. The low level worker goes in not very motivated to work in low level service jobs, and they are either forced to work boring hours for little pay or just If tips, in order to keep availability up and not allow customers to drift to other services. So many Taxi drivers in the old licensed model spend 80% of their time idle or on empty return journeys, while there is not capacity during peak times. Taxis are a good case in hand for the whole philosphy of the share economy, because they are a capital outlay and we tie the time of running available very much in to the licensing set up. If you have a car with an MOT certificate and a driver’s license you can do Uber and currently, just when you want to. Motivation then and an idea for immediate, run rate profitability are what are really different from the turn up, lights on contracted worker scenario in the lower value end of services. Also pricing in relation to the percieved, momentary value is important. If you get a ride bleeding to death to a hospital then surely the driver can charge for the cleaning up of blood, the risk driving fast and a premium price on top based on the high utility value actually delivered?

However private hospitals are a good example of why never ending granularisation of different services does not work very well for the consumer when they are in a position of demanding something urgently. Private Healthcare in the US is not only an entire hospital, it is many sub operators from the surgeons, anaethatists all the way down to the trolley operator company. In business there is a pay-to-play, an initial cost which has to be covered in admin of just being there, available, and then there are the costs of returning on investment, meagre though a trolley company’s may be. When we see competition being forced upon a market, such as in the UK energy market, we also see a lot of fifedoms which suddenly have marketing costs in acqusition, churn and retention, administration costs in accounting and compliance, and customer service centre costs, billing costs and so on. Milton Friedman recognised this duplication of costs and proposed that efficient provision in a market could be rewarded by a monoploy position. Which is kind of like George Orwells Animal Farm in tautology, “some animals are more equal than others” in a perverse reflection of the other extreme in ideology. This lead to virtual monopoly privatisation and tendering, such as with many railway services which can then extract higher fares from passengers who need to use the services, thus acting against the interest of the consumer while on the face of it, providing an efficient cost structure, competed for at point of entry. THis has by in large been a failure for both the UK traveller and the treasury, which susbidises the railways far more (excluding HS 12 and 2) than  in public ownership days and spend enormous sums administrating the contracts.

We digress with a very pertinent example, we can take the discussion of on costs further by talking about barriers of entry. Uber and Air reduce barriers to entry by making this the share economy. We share some of our key material resources – housing and cars in this case. However more fundamental than this, we share some of our time and location and we focus very much on what the return is on that time. We don’t go in blind, we only take a fare when we know it will cover out costs. At this granular end, barriers to entry are highly reduced by the facilitating apps and web sites, but that puts more focus on not doing jobs at a loss in order to maybe make money in future. The granulisation removes the deflationary pressure of people running loss leader services or pricing for market share domination, or expected reductions in unit costs later. People enter these markets as granular suppliers in order to make enough money for it to be worth it, and they render older supply like Taxis, uneconomic because of their heavier capital outlay. Making a quick buck means that you actually take 2 dollars and can do the service without any real forhand effort, just by virtue of being able to grab the opportunity in front of you.

Could though employers force most of us into the share world, where we are expected to be on site waiting with baited breath to work and charge out? Well that is an ageold phenonmenon from yesteryears longshoremen to todays sub contracted Amazon drivers who have to wait and then pay back the cost of using their employer’s vans. In reality if that becomes pervasive then we all loose earnings and the economy (which even in China is driven by services and consumption) contracts due to the removal of consumer confidence and spending power, and the immediacy of any down turns in supply chains relatign to this. Employers then find that the higher skilles staff, or even those who bother to make themselves available for super temp work, charge ever higher surge rates and avoid working at lower paid opportunities.

The element of coercion to be at a place of work or instantly available to the exclusion of other opportunities, then becomes a matter on the one hand for the market to flick the finger at, while on the other for labour to organise itself again and for policy makers to render such restrictive practices illegal (many are legal in Neo Liberal countries today like the US and UK).

 

There we come back again to the mechanisms of markets and the change in attitude between being a wage cheque employee, and an active haggeling supplier looking for the best margin opportunities. Other mediator brands will develope in part because they offer suppliers a better deal, and have enough investment to make a public profile. So we have suppliers who are canny and don’t sign exclusive deals with say Uber. They maybe run three apps in their cars and pick which pays best or has the nearest customers with the most profitable passenger journeys. As the mechanisms spread out towards different skill sets and opportunities, so that employers become facilitators who must administer a lot of granular activities and lose a degree of management power while being forced to accept MORE risk by following this model, rather than thinking they are shoiving risk out onto the one time employee.They then find that economies of scale play in, and move away from granular time management to buying in what is basically worker organised labour at rate card prices. So in terms of securing key organisational goals or reduced risk, predictable costs, team motivation, qaulity and productivity

 

We have gone round the houses of illustrated thought experiments based on theories and extrapolations, what we are forgetting is that there has been a long standing reality of “short order” work. Those longshore men queing every morning for piece work unloading cargo. Those free-lance account managers in Advertising or programmers in app-world. We see historically a split in this type of share time work between those who are in short demand and are specialist, and those who have low skills. The western conservative politic has been to permit exploitation as a means to securing economic growth, going back to days of slavery and child labour. The politicians paid for by the super rich, are there to ensure that there is power not of the market mechanism, but for the “natural” way that capitalism accumulates wealth by taking value out of workers lives and ensuring they are paid the minimum to survive in the face of costs of living where there are jobs. Slack labour laws allow not for greater freedoms, but for more coeercion and a blurred boundary between work and slavery. As long as this is the lower third of society and the middle third don’t notice it, then the upper classes of billionaires can keep on building their pyramids of huge excessive wealth, because that is the game of power for the game’s sake.

 

The share economy is a major disruptive event for traditional big capitalism because it enables workers to shift out of marginal activities in their service and retail chains and into more dynamic granular activities which have a higher net outcome for them. Also though, they will want to be able to use these mechanisms, supported by policy, to coerce more employees into waiting idly at the work place. Already we see that with Air Crews who are paid only for flight time, not delays on the ground, because they often have contracts in countries which permit this type of nonsense. The question is then will the uber-gig economy break the power of big, nasty, exploitative capitalism in our modern western, service based economies or will it use it as a means of enslaving an increasing proportion of the work force into insecurity and the line for work at 7am?