Britain's Mortgaged Future
The Private Finance Initiative now costs at least £151,000,000,000
One of the reasons the USA has been unsuccessful in its attempt to fix economic problems by cutting interest rates lately is that its 'policy classes' have failed a test of basic honesty. Policy class is an ugly word, but at least points you, reader, to the idea that America, like the UK, now has a group of people in the media, finance, politics and public life who are far less open minded and far more collective in their corporate outlook than for very many years. They count personal crisis and challenge as something to do with some mundane trouble; they never fought wars, they never faced death, they never actually understood what radical honesty means in public. So they ignore truths or focus on spin.
You cannot solve a problem arising from the combination of a monetary inflation, fiscal incontinence and a loss of competitiveness, with easy interest rate cuts. All you will get is stagflation.
The truth is that America has been living beyond its means since 2001. It has spent a huge amount. It has a huge balance of trade deficit, which it is trying to correct by an insane policy of letting the dollar sink reminiscent of seventies Italy. It has a monumental national debt. The image above comes from the link, which is to the great American national Debt clock site.
The US and Britain have created a set of vehicles that are not money, but that move invented ownership around in the electronic instants between the raindrops of time. These vehicles function as money but have no real value. The effect of these vehicles, these futures, derivatives, hedges, sivs and options, is akin to the effect of scrip in the American colonies or promises to pay gold promised to others in revolutionary France. It is to make people think that time is not running out and that the gods of the copybook headings will not reappear insistently.
If you borrow too much and cannot pay the borrowing down as a state, you will be at the mercy of your creditors. If you hand your country to bond traders you will not be free to choose your future. If you pretend to great power by juggling funny money promises you and your currency will go the way of Rome and Spain and the Ancien Regime.
The truly radical policy in the American election, and for that matter in any british election, would be to balance the budget and pay off debt however painful. It would be accompanied by a determination over the long term to tax assets and land and to disinflate government by forcing people and government away from credits and deficits.
The accountants and consultants and speculators who now run things would go crazy of course. At least things would be a little more honest and defined, though. Perhaps John McCain could look to the lessons of Panama, where he was born on a military base, and contemplate America's economic future if it doesn't get a grip; or Barack Obama could look to the fiscal management that the Asia where he grew up pioneered, and both could try and rein in the lobbyists whose alliance with the war party has almost bankrupted America. Obama's policy on the national debt can be found here.
Of course, you may choose to respond 'Fat chance. They'd be shot within a week.' Both these men are brave though. They have characters of the sort that those who were forged in the wars of the last century used to bring to public life but that few now do. American politics has often been dishonest, but as with RFK in 1968, I think these two both increasingly say just what they mean. Maybe things are becoming a little more honest.
So it is interesting to me to look at the real cost of Britain's boondoggle schemes to finance government. There are more voices here, frankly, who are honestly looking at things. They just are not being listened to.
Last November, for instance, the House of Commons Public Accounts Committee published a report on how much the Private Finance Initiative costs. The PFI is an idea invented by the fund managers and spokesmen for the bond markets who took over the Conservative and Labour Parties towards the end of Margaret Thatcher's rule. You can read its report here. It notes that there are now over 800 contracts with private sector suppliers for services which cumulatively are worth some £155 billion up to 2032. This is almost certainly an underestimate of their cost.
What happens is that government and banks create private companies at the behest of expensive consultants. These vehicles then borrow off the public books but guaranteed by public money (and therefore with guaranteed returns). They then build things for the public which the public then pay them for for thirty years before buying the public services back. Because of commercial confidentiality, people in the House of Commons cannot ask detailed questions.
Some of these companies then feed the public money to private subsidiaries, like metronet did, or employ the same consultants who argued that they should be set up. The big banks balance their funny-money investments against their holdings in such companies, and provide loan facilities. The ministers who approved the deals end up with directorships.
It would be safer to call this vast secret transfer what it is. A phenomenal way of transferring public money to a policy class that lies about it. Some public authorities are now having to cut services to pay for the deals. The contractors are taking more and more cash to feed the ultimate failure of funny money vehicles in the USA.
Here are some estimates of how much the future has been mortgaged. In 2006, Conservatives in the House of Commons argued for once convincingly that new NHS projects were not costing £8 billion but £53 billion. making my point about honesty, like a drunk who condemns the bottle, the Tories then say that we need more of them.
PFI projects are regularly taking far longer than comparable public projects and longer than estimates.
PFI proponents say it lowers taxes and interest rates, delivers quality services, keeps the government debt down and provides reliable infrastructure.
All of this is clearly wrong.
We are not being honest on either side of the Atlantic. We will pay for that in broken families, lost houses, unpaid mortgages, wasted interest on debts, and the near-fatal weakening of the West just as we threw away a good deal of our cultural capital and distinctiveness a few decades ago. We face tribute wars, arrogant attempts to impose our problems on others and the frantic expense of our spirit in a waste of shame.
It is not too late to get a grip. We must honestly face the problems we have. Only then can we deal with the discontents and evils in the world that lies outside our rich decaying fortress properly. We should embrace social service, social ownership and genuine social partnership again.
Or, we can wait for the animals to stampede away from what is coming. We are now beyond just the sound of drums. Something is happening and there are very high stakes in honesty right now.