First, we must congratulate Nigeria. In 1999, after year of military rule, it returned to a democracy. It has had three civilian presidents in a row - and not thrown out by the army.
However, the democracy was set up on the notion of "zoning": a rota where candidates for many public positions are alternated between the Muslim north and the Christian south. This includes the presidency.
Although this sytem was intended to quell Christian fears that they were being shut out politically, it is nevertheless flawed. Candidates, are chosen more on their place of birth than their competency. Nigeria could do with a fully meritocratically chosen president - life expectancy lies at a meagre 49 years and most oil revenues end up in the wrong hands.
Equally important is that zoning accentuates the rift between north and south. In the long term, it does not unite Nigeria - it merely emphasises the difference. This is not the way forward. Policy debates are more likely to be seen through the prism of region and religion.
Monday, 1 November 2010
Thursday, 28 October 2010
The way forward: quantitative easing
The economy is growing faster than expected - 0.8% in the third quarter, from July to September.
Paul Krugman, the Nobel winning economist, argued in the New York Times last week that "premature fiscal austerity will lead to a renewed economic slump." However,this does not seem to be the case: tightening fiscal policy has improved confidence in the economy. The credit agency, Standard & Poor, announced that Britain's AAA status is now "stable." Spending cuts will be a cataylst for a virtuous circle: improved confidence leading to a boost in private consumption and investment. On the other hand, high levels of public spending will only serve to crowd out the private sector.
But as fiscal policy tightens, there needs to be another path to stimulate output. This is where monetary policy comes in. The MPC should expand the money supply through quantitative easing. This will reduce the cost of money. Yes, short term interest rates are already near zero, but long term rates on bonds and mortgages need to be lower. This is the way forward.
Paul Krugman, the Nobel winning economist, argued in the New York Times last week that "premature fiscal austerity will lead to a renewed economic slump." However,this does not seem to be the case: tightening fiscal policy has improved confidence in the economy. The credit agency, Standard & Poor, announced that Britain's AAA status is now "stable." Spending cuts will be a cataylst for a virtuous circle: improved confidence leading to a boost in private consumption and investment. On the other hand, high levels of public spending will only serve to crowd out the private sector.
But as fiscal policy tightens, there needs to be another path to stimulate output. This is where monetary policy comes in. The MPC should expand the money supply through quantitative easing. This will reduce the cost of money. Yes, short term interest rates are already near zero, but long term rates on bonds and mortgages need to be lower. This is the way forward.
Wednesday, 20 October 2010
Guide to the Comprehensive Spending Review 2010
Why is there a Spending Review?
The Comprehensive Spending Review, lead by Sir Phillip Green, will examine public expenditure from the last three years to try to identify potential savings.
This review essentially aims to reshape and resize the state sector in the economy – but at the same time, maintaining fairness and encouraging economic growth. Even before the recession, the structural budget deficit of the
Thus, this review has been undertaken to tackle this problem – by cutting government spending.
What has Mr Osbourne announced today?
George Osborne mapped out £81bn of spending cuts over the next four years to reduce the budget deficit. The average cut in departmental budgets is 19%.
The headline saving - £18bn in total from unprecedented cuts in welfare spending. Incapacity benefits are to be reformed – they will become means-tested.
Among the biggest hit was the department of Eric Pickles, the Communities Secretary, whose budget was cut by 68%. However, responsibility for deciding how to make the cuts is being transferred to local councils.
Thousands of prisoners will be released under plans to cut the jail population by 3,000 over the next four years. For example, plans to build a 1,500 inmate jail in
Health budgets will rise by 0.1% in real terms but plans to expand free prescription entitlements and one-to-one nursing care for cancer patients have been scrapped.
Schools funding has also been partly protected – the rise, after inflation is factored out, amounts to 0.1%. This includes an increase in money intended for children from poor families for free school meals. However, capital spending will be cut by 60%.
The retirement age will move up to 66 by 2020 – millions of workers will have to wait longer to receive their state pension. Nevertheless, pensioners’ winter fuel payments were protected, as were free bus passes and TV licences.
The annual budget for home energy efficiency improvements will fall from £345 millions this year to £100 million in 2012-13. The policing budget is to be cut by a fifth and banks now face a permanent tax levy.
Wednesday, 6 October 2010
Just too draconian
In July, clashes between the Romas and the police triggered the French government to crackdown on illegal settlements with "Romas as priority" and then to deport them.
There are two problems with this. First, it is an unjustifiable generalisation - the government are stereotyping a whole ethnic group and placing them under one branch. This is a populist, xenophobic measure. If the British government were to round up lawbreakers "with blacks as a priority," there would be a mass uproar. This is exactly what the French government are doing.
Second, it is the wrong way to address the problem. Yes, perhaps, many Romas are involved in crime, prostitution and trafficking - but this is a matter of law and order, not deportation. If they are breaking the law, then just like anyone else in society, the police must deal with it. The approach of the French government is too extreme. Enforcing the law through the police force is a proportionate response that will achieve the same end - making French society a safer place.
Regardless, it is the duty of the French government to look after its fellow EU citizens. Romas in the Bronx in New York are doing so well unlike their European counterparts, who fare the worst on every social index. This is because the American government have helped to educate, and not just shun, the Romas. Education is the long-term, sustainable solution if we are to solve Europe's biggest social problem - and France have a duty to help fulfil that aim.
Instead, Sarkozy has chosen the easy, immoral route that forsakes their moral duty and is too draconian.
There are two problems with this. First, it is an unjustifiable generalisation - the government are stereotyping a whole ethnic group and placing them under one branch. This is a populist, xenophobic measure. If the British government were to round up lawbreakers "with blacks as a priority," there would be a mass uproar. This is exactly what the French government are doing.
Second, it is the wrong way to address the problem. Yes, perhaps, many Romas are involved in crime, prostitution and trafficking - but this is a matter of law and order, not deportation. If they are breaking the law, then just like anyone else in society, the police must deal with it. The approach of the French government is too extreme. Enforcing the law through the police force is a proportionate response that will achieve the same end - making French society a safer place.
Regardless, it is the duty of the French government to look after its fellow EU citizens. Romas in the Bronx in New York are doing so well unlike their European counterparts, who fare the worst on every social index. This is because the American government have helped to educate, and not just shun, the Romas. Education is the long-term, sustainable solution if we are to solve Europe's biggest social problem - and France have a duty to help fulfil that aim.
Instead, Sarkozy has chosen the easy, immoral route that forsakes their moral duty and is too draconian.
Tuesday, 21 September 2010
Heading out of the lion's den
Eric Daniels, the chief executive of Lloyds Banking Group, will retire next year. This is also the case with John Varley of Barclays and Stephen Green of HSBC. Sir Fred Goodwin stepped down from RBS in 2008 when the government were forced to save the bank from collapse. With the exception of Peter Sands, chief executive of Standard Chartered, this marks the final departure of bosses who steered the banks through the financial crisis.
Standard Chartered were shielded from the severity of the crisis due to its larger exposure to developing markets.
The coming months could also prove to a be a turning point for HSBC and with that, a blow to Britain. In March, their chief executive, Michael Geoghegan relcoated to Hong Kong. Now as Stephen Green steps down as chairman to take up a position as Trade Minister, their next chairman could be based in Hong Kong.
This is symptomatic of a greater trend of banks moving east to capitalise on the growth in China and the rest of Asia. HSBC, Barclays and Standard Chartered have warned that this move will be acclerated if regulations become too stringent.
They have a point. We run the risk of pushing these banks away, hence lowering our international competitiveness in the long term, if we continue on this path. At the Liberal Democrat conference today, Vince Cable will announce further plans to levy 50% on banker's bonuses again. We must be very careful - satisfy the need to protect our economy but not be too rash in doing so.
Standard Chartered were shielded from the severity of the crisis due to its larger exposure to developing markets.
The coming months could also prove to a be a turning point for HSBC and with that, a blow to Britain. In March, their chief executive, Michael Geoghegan relcoated to Hong Kong. Now as Stephen Green steps down as chairman to take up a position as Trade Minister, their next chairman could be based in Hong Kong.
This is symptomatic of a greater trend of banks moving east to capitalise on the growth in China and the rest of Asia. HSBC, Barclays and Standard Chartered have warned that this move will be acclerated if regulations become too stringent.
They have a point. We run the risk of pushing these banks away, hence lowering our international competitiveness in the long term, if we continue on this path. At the Liberal Democrat conference today, Vince Cable will announce further plans to levy 50% on banker's bonuses again. We must be very careful - satisfy the need to protect our economy but not be too rash in doing so.
Thursday, 9 September 2010
To cut or not to cut...
The Lib-Con coalition have been very clear from the outset: the budget deficit will be reduced drastically by the end of this parliament. This is in contrast to Labour who planned to cut the deficit by half over the next four years. Between the two parties, there is a clear divergence on how to deal with our fiscal policy.
This conflict reverberates through the entire British economy. On the one hand, we have the ardent Keynesians, who argue that government spending must not yet be curbed. On the other hand, there are those like George Osbourne, who vehemently feel that reduction must be at a much faster rate. Perhaps this is true; sustained spending could trigger inflation in the long-run. Further, interest rates will rocket as investors lose confidence in our government.
However, I see more merit in keeping our foot on the pedal. There are pertinent lessons to be learnt from the demise of Japan. In the 1990s, they tightened their fiscal belt before private demand could sustain itself. This is the case with Britain. Household debt levels in the UK are worringly high - reduced public spending and tax increases do not bode well for the British economy.
Perhaps this issue is so capturing because of the conflict of ideas it presents. Both sides wield strong economical arguments.
Nevertheless, the budget deficit question is not as clear as it may seem. There is nobody who disagrees that the deficit must be cut. Our structural budget deficit is unforgivable and an EU commission estimates that our deficit lies at 12% of our GDP. It is the rate of cutting that is so hotly contested.
This conflict reverberates through the entire British economy. On the one hand, we have the ardent Keynesians, who argue that government spending must not yet be curbed. On the other hand, there are those like George Osbourne, who vehemently feel that reduction must be at a much faster rate. Perhaps this is true; sustained spending could trigger inflation in the long-run. Further, interest rates will rocket as investors lose confidence in our government.
However, I see more merit in keeping our foot on the pedal. There are pertinent lessons to be learnt from the demise of Japan. In the 1990s, they tightened their fiscal belt before private demand could sustain itself. This is the case with Britain. Household debt levels in the UK are worringly high - reduced public spending and tax increases do not bode well for the British economy.
Perhaps this issue is so capturing because of the conflict of ideas it presents. Both sides wield strong economical arguments.
Nevertheless, the budget deficit question is not as clear as it may seem. There is nobody who disagrees that the deficit must be cut. Our structural budget deficit is unforgivable and an EU commission estimates that our deficit lies at 12% of our GDP. It is the rate of cutting that is so hotly contested.
Saturday, 21 August 2010
The case for austerity
From speed cameras to schools to the film industry - every corner of public spending must be examined for possible cuts.
It was the proper role of government, in the financial crisis 2007-09, to cut interest rates and increase spending. This was right to meet the shortfall in private demand. Although this meant running up a large budget deficit, as the government spent more on welfare than they recieved from tax receipts, it can be seen as a necessary evil. The most ardent of Keynesian thinkers still maintain that spending is needed until the recovery is assured.
But we must put things in perspective. The European Commission estimates that the UK has budget deficit of 12% of the GDP - the highest of any EU member. Long-term interest rates have not shot up because of the serious stance the Lib-Con coalition have displayed on deficit reduction. Increased public spending was the right path in the recession, but now the path is clear.
It was the proper role of government, in the financial crisis 2007-09, to cut interest rates and increase spending. This was right to meet the shortfall in private demand. Although this meant running up a large budget deficit, as the government spent more on welfare than they recieved from tax receipts, it can be seen as a necessary evil. The most ardent of Keynesian thinkers still maintain that spending is needed until the recovery is assured.
But we must put things in perspective. The European Commission estimates that the UK has budget deficit of 12% of the GDP - the highest of any EU member. Long-term interest rates have not shot up because of the serious stance the Lib-Con coalition have displayed on deficit reduction. Increased public spending was the right path in the recession, but now the path is clear.
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