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Of management and the weather

Fri, 7th Jan 2011

Although it’s not man-made, unlike the financial hurricane that ripped through the world two years ago, the extreme weather conditions of the last six weeks, and the subsequent orgy of blame and recrimination, provide some timely management food for thought for both individuals and institutions.

Thus, terrorists and plotters everywhere, eat your heart out. It doesn’t take bombs or sophisticated conspiracy to unhinge our our ultra-managed, protected, securitised, organised and information-swamped environment and throw it into panic. It takes rain and snow. Our antediluvian grandparents would have been astonished. They were profoundly undismayed by the idea that each year they might suffer temporary inconvenience from cold, wind, and precipitation. They got in extra provisions, stocked candles, and wore warm clothes. They even had a name for it: winter. They would have understood the sentiment, if not the language, of the twitterer who wrote at the height of the crisis: ‘Caught short by the snow? Confined to barracks? Buy a f****** shovel.’

As ever, the reaction for such natural ‘disasters’ is to look for culprits and resolve that it will never happen again. Why weren’t we told? Whose fault is it? Who’s going to pay/resign/say sorry? Hence the tidal wave of retrospective regulation slamming the door after the horse has bolted. Not only that: by reinforcing the belief that natural causes can be managed away it perversely and tragically undermines the individual resilience that our grandparents knew to be the only sensible and proportionate response.

At institutional level too the weather raises some important questions about long-term issues of economic management – issues that have been long brushed under the carpet of conventional wisdom. Could it be that the winter of 2010-2011 will come to mark the full stop at the end of the era of privatisation?

In his excellent Zombie Economics: How Dead Ideas Still Walk Among Us (of which more on another occasion), John Quiggin nails privatisation as of one of the undead: an idea whose substance has been sucked away by the global financial crash but whose empty husk lingers spectrally on.

Who’d have thought even a few years ago that such capitalist icons as Bank of America, General Motors, Royal Bank of Scotland and Citigroup would find now themselves in public ownership? Of course, these will almost certainly be temporary public enterprises. But in truth privatisation has been in retreat for years. It’s not just that that there has been a steady stream of individual renationalisations: Railtrack and London Underground in the UK, rail and the national airline in New Zealand, broadband in Australia, health (controversially) in the US, not counting the crash casualties for which the public sector has turned out to be a literal lifeline. It’s that its underlying pretensions to efficiency and public benefit are increasingly revealed as threadbare.

Quiggin, an economist, notes that despite the strident free-market rhetoric, empirical evidence on the effects of privatisation is both rare and ‘decidedly mixed’. Some privatisations, as in Russia, were organised banditry. When Quiggin looked at selloffs in Australia, he concluded that the only ones yielding the government a net fiscal gain were those that took place in a bubble, with the result that they were later resold at a loss. In most cases, he says, ‘there was a net fiscal loss from privatisation’, with no offsetting benefits to workers or consumers, implying that there was also a net social loss.

You don’t have to be a revolutionary to note that what the theory suggests, this winter’s snow and ice made bleeding obvious. As FT columnist and deputy editor Philip Stephens wrote recently, the shambolic events at Heathrow before Christmas exposed, not for the first time, an increasingly evident truth – ‘a culture of private ownership, financial engineering and short-term financial reporting that militates against long-term investment in major infrastructure’. In the same newspaper, John Kay, another economist, agreed: ‘Highly geared businesses are not suited to the long horizons needed for airport planning’ – or indeed other infrastructure projects, which is why the UK’s railway system too is such a mess.

Stephens called for Heathrow to be nationalised, or at least turned over to London mayor Boris Johnson. Meanwhile, writing in Libération, an observer of similar events in Paris noted that his abiding memory of the episode was of EDF (Electricité de France) engineers behaving like real public servants: working all night without a break in freezing rain to get the lines back up again.

The lessons of the coldest winter and the iciest financial climate for the best part of 100 years thus converge at the same perhaps unexpected point. The unmanaged market is a recipe for disaster. What is needed is a system that is actively mediated by the government, in which individuals, private companies and the state all have a complementary part to play. The boundaries between them are permeable and shift over time, but none can thrive exclusively of the others. As Quiggin notes, this is not a compromise between free markets and socialism: unlike the vapid offerings of Tony Blair and Bill Clinton in the 1990s or David Cameron, it is a real Third Way that free-market ideologies made it previously impossible to envision.

Happy New Year. And let’s hope the weather improves.






 


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