by Martin Odoni

A rather misleading introduction to an article by the BBC (surprise, surprise) suggests that sterling’s value is rallying quite healthily, implying that ‘Brexit‘ is not necessarily the fatal wound that occasional slumps over the last eighteen months had indicated. With further encouraging news today of improving unemployment figures, the pound’s value has risen against the US ‘greenback’ to $1.42.

Now, in fairness, there was never any certainty about post-Brexit financial armageddon anyway, merely a considerable danger. And that danger has far from gone away; until a healthy severance deal for the UK for leaving the European Union is secured and its details published, another slump could happen at any moment. More significantly – and this is sort-of admitted later in the article – the pound is not really ‘rallying’. At least, it is not rallying nearly so much as the US dollar is slumping. That the pound has hit a reasonably stable level for the time being is undoubtedly good news, all-things-considered, but it should not be announced as something it is not.

The reason to doubt that sterling is strengthening particularly is that the status of a currency cannot be measured against one other alone. For instance, when measured against the single European currency, the euro, the pound’s value is not nearly as exciting; it has hovered around the 1.15 mark for around four months now.

The US dollar has been weak for well over a year, and the slump in international demand for the greenback – European activity is seen as more appealing among speculators right now – has meant its value is taking a bit of a kicking. The Donald Trump administration in Washington claims that this is precisely the plan; with the dollar continuing to depreciate, US exports become more attractive to foreign markets as sufficient dollars to afford them can be purchased more cheaply. And in fairness, US exports have risen fairly sharply since mid-2017; –


But there are plenty of reasons to be skeptical that this depreciation is a deliberate plan, and not just the inevitable ‘closing-down-sale’/bright-side-accident effect of a slumping currency.

Firstly, the Trump administration has a certain track-record of (what would be a nice way of saying this?) not remembering the recent past with sharp accuracy. When presented with inconvenient facts and incontrovertible evidence that these facts are true, Trump and his cronies tend just to cry, “FAKE NEWS!” and run away. It is quite possibly the crudest, most infantile form of propaganda seen in a major country since the First World War, and claiming bad-news-is-good-news would fit that same pattern very neatly.

Secondly, the rise in exports was visibly part of an on-off trend that had started early in 2016, when Barack Obama was still at the White House. Furthermore, that trend more or less stopped for some months after Trump was inaugurated last year. It only really picked up again about halfway through 2017.

Thirdly, were the aim of ‘deliberately’ letting the dollar’s value slide really to boost exports, why did Trump not just devalue the dollar and keep the process under some measure of control? Letting it happen more or less naturally is far more dangerous, as speculators may respond by dumping dollars at runaway increasing speed. Indeed, that makes the claims of Steve Mnuchin, the US Treasury Secretary, doubly dangerous. If he declares that he will deliberately make the dollar weaker and weaker, he will encourage speculators to dump greenbacks in a panic, as they will know that they cannot expect to make a profit on them. There comes a point where even an export-loving economy cannot afford for its currency to drop any further i.e. when it gets so low that domestic prices become unaffordably high. A flat devaluation at the outset would probably have avoided that danger.

Fourthly, the US economy is geared as an import economy, and the depreciation of the dollar makes imports more expensive, as do the new tariffs introduced this week. That would fit in with Trump’s obsolete, protectionist mindset, for sure. But making imports unattractive by artificially making them more expensive ultimately scuppers exports too, as other countries tend to retaliate with similar policies of tariffs and depreciation of their own currencies.

NB: Take China, a country that is export-locked i.e it produces far, far more goods than its population needs, and so has to keep exporting them as much as possible to prevent the glut from making them valueless on domestic markets. China has often deliberately undervalued the renminbi for many years, as its insane over-production levels mean that it has little need for most types of imports, while desperately needing to keep sending goods abroad. A weak Chinese currency means other countries can buy Chinese exports cheaply, while the enormous glut of domestic goods means that the increased price of imports is fairly meaningless. The heavy need for exports and relative irrelevance of imports means the Chinese Government would not be at all reluctant to devalue the renminbi as a response to any deliberate currency manipulation by the USA.

And finally, boosting exports while simultaneously making imports more expensive can be contradictory aims for another reason; if imports become pricier and therefore start to decline, demand for ‘homegrown’ goods may well go up domestically to fill the gap. If that happens, there will, by definition, be fewer homegrown goods available for export, as the home market will consume more of them (unless there is some kind of ‘supply-side miracle’ i.e. a surge in home production – not really something that can be relied upon to happen). Furthermore, and somewhat paradoxically, prices at home would very possibly go up even further in response to such a climb in demand, making imports more attractive again, and so defeating the object of the exercise.

For all these reasons, and possibly more, I think we can dismiss Mnuchin’s ‘tweak-of-the-moustache’ claims that “it’s-all-part-of-the-plan!

So overall, the real cause of sterling’s gains against the greenback is that downward pressure on the pound has been overtaken by the downward pressure on the dollar. The stabilisation of sterling’s value against the euro, meanwhile, is likely because, despite Tory attempts to say otherwise, there are signs from the Brexit negotiations that the UK is likely to stay in the Single Market after all, which is improving confidence among investors. This is a symptom of how weak the British bargaining position has been, and how poorly the Government has negotiated, but all-in-all, it would not be bad news were that the final outcome.

Back in Britain, all these (relative) silver linings are happening to the accompaniment of renewed whispers of discontent among Government MPs, regarding Theresa May’s performance as Prime Minister. This highlights an amusing paradox in her position; the better the economic news is for her, the likelier it is that she will be overthrown.

Since the General Election farce last June, May has been on borrowed time as Prime Minister. In a sense, in fact, she has been a Prime Minister in name only, as underlined by the Queen’s Speech being so short and setting out such an unambitious program for the current year. May has so little authority that she is presiding over the Government more than she is governing the country. In most circumstances, she would have been gone within days of the Election.

The only reason no Tory has dared challenge her for the leadership since that time is that the national outlook has, for the most part, looked pretty dire; being Prime Minister has looked like the proverbial poisoned chalice. Inflation has risen to around three per cent – very low by the standards of some decades but high by the standards set since the mid-1990s – the negotiations for Brexit have been messy and have fallen far behind schedule, GDP has weakened, parts of industry still have not recovered to anywhere near the pre-Credit-Crunch levels of performance, the NHS is in an all-time crisis, productivity is low, under-employment remains rampant, public service performance remains sketchy, and is in a fragile shape with the startling news of Carillion’s collapse, which could still drag a lot of other companies down with it. Nobody wants to risk becoming Prime Minister should the time come when all of these underlying problems hit ‘critical mass’.

But now that there are some positive signs (do not get excited, mind, they are nothing to write home about), including a stabilised pound, suddenly the idea of getting the keys to 10 Downing Street does not look quite so daunting. So the usual suspect, Boris ‘BoJob’ Johnson, has been making characteristic noises to undermine May’s position again, and to make his deceits during the Brexit referendum look plausible once more – while of course casually leaking the details of his manoeuvres to the media at the same time. Others on the lunatic Brexit fringe of the party may also be getting itchy feet about the drift towards a ‘Soft Brexit’, and wish to intervene to harden the British negotiating position once more, even though the prospect of staying in the Single Market appears to be precisely what is reviving the fortunes of the pound. Some other Tories are simply fed up with the general listlessness of the May administration.

This is the bizarre position May is in; if she wishes to remain as Prime Minister, she has to hope that the economic outlook does not improve much. If it does, someone will finally see a sufficient reward in replacing her. And Donald Trump is the man who, inadvertently, has created an illusion of British success through economic failure in the USA. He could just have triggered the rebellion that ends May’s premiership.

As for the brightened outlook, on the one hand it is good news, but in some ways it is irritating. This is because the most impassioned and jingoistic Brexiteers are bound to try and present this as a sign that leaving the EU is a good move, and it is not.

Be under no illusions, the improved forecast is because global conditions are looking up. It is not because of ‘good’ Government policy, and it is certainly not because Brexit is not harmful after all. (Brexit has not even happened yet, folks, the really tough times lie in the future, especially if the UK leaves the Single Market in the end.) The optimism is in spite of Brexit and Government policy. There remains, with wages still sluggish and high domestic borrowing, a serious danger of a second Credit Crunch in the near future – no, thankfully it did not happen last year as I had been openly fearing it might, but the underlying problems that make it a likelihood, of household debt rising faster than wages, have not been solved, or even addressed. The increase in interest rates in November, although small, will certainly not help to reduce the amounts owed. Brexit could still go horribly wrong, especially given how little time is left to complete a mammoth program of negotiations for a new trade deal with the EU, if we wish to avoid defaulting to the far harsher World Trade Organisation rules. The issue of a new border settlement in Ireland that will be acceptable to both Unionists and Nationalists has still not been straightened out; if that goes wrong, the repercussions could literally include war. The collapse of Carillion could still lead to a domino-effect of cave-ins throughout the construction industry and across the wider public services sector. Interserve is another big firm caught in the headlights.

There is still so, so much that could go wrong. Just because the situation does not look completely hopeless for the moment, it does not mean the country has made the right move after all. The brighter global outlook would have happened without Brexit, and the UK would probably benefit more from it without Brexit exerting a ‘drag factor’.

Still, there is a very satisfying way of looking at this; even when hampered by Brexit, the UK’s economy is still doing better than Donald Trump’s USA.

by Martin Odoni

Can you imagine if what has happened over the last three days had happened in the 1970s?

Can you imagine what the Conservative Party and the media would be saying right now if what happened to Carillion today had happened under a Labour Government?

Can you imagine what the Conservative Party and the media would be saying right now if what happened to Carillion today had happened to a nationalised industry?

Can you imagine the rants and rage we would have to sit through from boorish right-wing ideologues likes Boris Johnson and Tony Blair about the obsolescence of ‘Old Labour’ and public ownership?

But of course, this would never have happened to a nationalised industry.

An industrial calamity

The cause of today’s calamity is that Carillion have done something very free market and capitalistic in nature. They repeatedly ‘under-bid’ for public service contracts. This is to say, Carillion kept hoarding jobs that were contracted-out by the Government, but so desparate were they to beat all opposing firms to the contracts that they charged dangerously low fees for carrying out the work. So low, it turns out, that they hardly made any real profit from them. The exact reason for following such an insanely, needlessly risky strategy is not yet completely clear. The ugly suspicion is that Carillion was playing ‘corporate hardball’; trying to starve its competition of work until they folded, wih the intention of massively increasing its fees when it had a virtual monopoly in place. But with the pressures of a frequently declining pound in a Brexit environment, the cost of importing necessary materials kept rising, faster than rival firms would decline. The company’s debts rocketed to a starling £1.5 billion. In the unnecessary race to the bottom, it seems, Carillion crumbled first. A last-gasp request for a Government bail-out was refused (perhaps because Carillion is not a bank). The conglomerate is now going into liquidation.

Carillion exploding

Carillion is immediately to blame, but this would not have happened to a public firm, as, even if it had to compete with a private firm for the contract, it would not be allowed to under-bid without permission from the Government.

Where the Government went wrong

The Government itself is also to blame though. Somehow, even when Carillion were quite openly declaring profit-warnings about how dangerously high its debts were climbing and how low its revenue was falling, and when the share-prices kept plummeting, somehow, somehow, somehow, the Government still kept awarding the conglomerate new long-term contracts.

To demonstrate what a bewildering saga of stupidity this is on the Government side, see from the graph below (from the BBC) just how dramatically Carillion’s share-value fell last year. It was around £2.30 as recently as May, and then slumped to around 20p by November, with a particularly disastrous plummet in July, on announcement of the first profit-warning. And all the way through that time, the Government seemed not to notice, and just carried on handing Carillion new contracts.

Carillion shares value graph

Why the Government went wrong

Why did the Government behave in this idiotic way? There are three possible explanations I have been able to think of so far, and all of them are bad.

First, and likeliest, is that the Government were just being unbelievably lazy and mechanical, and simply failed to notice how bad things were getting in the Carillion losses column. Therefore, when issuing contracts, the Government were only looking for the cheapest bid, and not verifying the viability of the bidder. They may even have just carelessly assumed everything was fine because “Hey, it’s Carillion, they’re huge, so they must be in good shape financially!” (EDIT TO ADD: This is close to Mike Sivier’s findings, although the Government behaviour he describes is slightly more complicated – but no less idiotic.)

A second possibility, and somewhat more intelligent, but still reckless beyond all reason, is that the Tories were deliberately trying to stabilise the company’s share-value and therefore stave off a total cave-in. A little like the way the Bank of England buys pounds at a high exchange-rate any time sterling’s value is depreciating, in an attempt to increase demand, the Government may have hoped that by throwing more and more contracts Carillion’s way, they would restore stockholder confidence in the firm, and convince them to stop dumping its shares. While this would be a less complacent explanation, it is still inexcusable. No Government is entitled to make such a gamble with so many public services and facilities. Whenever any Government behaves in this way, it is a classic symptom of a company that has been allowed to become ‘Too Big To Fail’ i.e. so large and with so much of society forced to depend on its continued function that if it collapsed, it would cause an industrial or economic disaster. This is why the Gordon Brown Government bailed out the banks ten years ago. In 2017, the Tories wanted to prevent the collapse of a firm like Carillion, because it runs such large sections of public services, and the knock-on effects would potentially be enormous.

Sure enough, what has happened today could cause a wide range of other companies to fold as well. Carillion has played the role of work-broker to them for many years; a lot of these firms are much, much smaller and lack the ‘reach’ to secure these contracts without a much bigger firm to play as the go-between. They could go to the wall as well without being able to maintain the same amount of business – and there are a lot of these firms. Many of them are already owed cash for work they performed on Carillion’s outsourced behalf, cash they will now probably never receive.

A third possibility, for which I have so far seen no evidence, is that someone at Carillion did a dirty deal with someone in the Government to keep the contracts arriving. By applying Occam’s Razor, it seems the least likely explanation – I usually subscribe to cock-up theory more than conspiracy theory – but it can hardly be ruled out as yet.

The Tories are too slapdash to run the economy

It is likeliest that the Government were just being negligent – where have we heard that song before? But should the real explanation for the Government’s stupidity prove to be carelessness, recklessness, or corruption, what are unmistakable are the echoes of the slapdash handling of Brexit. David Davis showed deceit and casual negligence over the non-existent Brexit impact-assessments, and now someone in Government has shown breathtaking negligence in dishing out contracts to a firm that was clearly on the brink of insolvency.

In rapid succession, the Tories have twice shown themselves to be too foolish to be trusted with the British economy and its industrial base. They are simply too impatient, too sloppy, too careless, to bother with necessary fine detail before making key decisions.

To reiterate, the problems do not stop with what happened today; a lot of smaller firms who received work via Carillion are now in bother, plus a wide range of public services could soon have to be suspended while alternative providers are found. The Government has only guaranteed it will pay Carillion’s suddenly-stranded workers until Wednesday. After that, the workers will be unemployed – around twenty thousand of them – and the services they provide may well be in limbo. If the next few weeks are not handled very precisely, there could be a serious collapse in UK industry.

Compare today to the 1970s

Recalling the occasional paralysis in British industry in the 1970s, and the neverending catalogue of right-wing warnings of how a return to that nationalised era must be avoided at all costs, it is noticeable that developments today in a strictly capitalised era could lead us to precisely the same paralysis. Trade union power is not causing it, corporate power is causing it. It raises once more the old doubts about what really caused the problems of the 1960s and 1970s. They may not have been due to nationalisation in and of itself. They may have been due to the phenomenon of an industrial body simply being too large – too large for the left hand to know what the right hand is doing, but also too large to be dismantled without causing severe difficulties across the wider economy. That can happen in either the public sector or the private sector. There is no reason to assume a private sector body that gets too big for its boots will be any less of a problem than a public one. And given that nationalised industries in the post-war era had a lot more autonomy than is often recognised, they also had far more in common with their private counterparts of today than neoliberal ideology would like us to notice.

If there is not a fundamental change of direction in the ownership of British industry after this, therefore, I do not wish to hear ever again about what went wrong in the 1970s. Because it will be all-too-clear that the people who keep feeding us these one-sided scare-stories about that era do not really care about how well or badly the British economy was functioning back then. Because it has not functioned noticeably better in the neoliberal era (it is often less sluggish these days but it is also far more chaotic with recessions and outright financial disasters more commonplace than before) and all the scaremongers were ever really upset about back in the day was that people like themselves could not have much power in a Keynesian economy.

I am not arguing for the old-style nationalisation model to come back, incidentally. There were significant problems with it, especially a cultural tendency it encouraged to try and maintain old practices when they were no longer viable. But the same problems, and more besides, happen with large private firms too. I cannot emphasise enough what an undiluted shambles the Carillion liquidation is, or the enormity of the damage it could lead to if the Government gets its response strategy wrong.  The Tories should be getting annihilated by the media right now for their stupidity. Typically, they are getting off fairly lightly instead. Labour, who would not be treated nearly so leniently, are doing their bit to hold the Government to some measure of account, with Jeremy Corbyn highlighting the toxic role of the Private Finance Initiatives that his ‘New Labour’ predecessors were so tragically fond of, and which the Tories had initiated under John Major. And Rebecca Long-Bailey has demanded a full investigation into the Government’s handling of public service contracts issued to private firms.

How right they are. Between this and the fiasco of Hinchingbrooke Hospital (the privatisation of which the Tories eagerly endorsed shortly before the Trust running it went bust – again, the Tories have never been taken properly to task by the media over it) it is quite clear that this ‘private company’ model for public services is unworkable.

We cannot keep on throwing money at it, it just is not working!

If that phrasiology sounds familiar, there is a very good reason why. The Tories have used it for most of the last half-century to demand the end of many public sector industries. They cannot have it both ways.

by Martin Odoni

Kenny Dalglish, the former manager and perhaps greatest ever player to represent Liverpool Football Club, is the subject of a controversy not of his own making. With the New Year’s Honours List announced in the last couple of days, supporters of Liverpool have been getting very angry at the ongoing absence of their club’s most revered former star from Britain’s roll-call of Knights-of-the-Realm.

There has been talk for many-a-year about ‘King Kenny’ being overdue for a knighthood. Such talk is perfectly understandable. Not only was he one of the greatest footballers of all time – I personally rate Dalglish as even better than George Best – he was also a most shrewd coach for the team over two spells totalling seven years, which saw Liverpool win every trophy in the domestic game, including three Championships. His achievements as both player and manager were all the more remarkable given that he was witness to three of the four worst stadium tragedies in British history; the Second Ibrox Disaster, the Heysel Stadium Disaster, and the Hillsborough Disaster.

Dalglish was manager at the time of Hillsborough, and, still only in his thirties, he found himself having to lead the entire city of Liverpool through a grieving process for nearly a hundred lost souls. His handling of several dreadful months of despair across Merseyside was so sensitive and so dignified that his status as a legend on the field became matched by his legend off it. For more than any other reason, it is because of the way he led the city through the mourning process post-Hillsborough that Liverpudlians want Kenny Dalglish to receive acknowledgement in the Honours List.

One aggravation for many is that Dalglish continues to be overlooked (supposedly) while politicians with blemished histories – in the current instance the former Liberal Democrat leader Nick Clegg – receive gongs like chickens receive feed. Given Clegg’s shabby history of promises broken for the sake of power, the anger is quite well-placed.

I am not arguing with these points as such. I yield to none in my disgust that a second-rate, non-achieving promise-breaker with a very limp grasp of basic economics like Clegg is getting a knighthood. (For what exactly?) But some of the expressions of dissent I have read on social media have been a little wide of the mark. Not so much because of what is said about Clegg, but because of what is said about Dalglish.

For instance, the following image has been doing the rounds quite a bit; –

Dalglish myth

Now before I state my irritation with this tweet, let me make clear; Dalglish was one of my heroes as a child, and I have no hesitation in adding my voice to the chorus of praise he gets for his role in the aftermath of Hillsborough, as well as for his fantastic charity work. But Mr Gudgeon is not correct. He is quoting a very over-proliferated myth. Dalglish did not attend all ninety-six funerals of Hillsborough victims. We are unsure exactly how many he did attend – even Dalglish himself lost count – but it was certainly not all of them. I am fairly sure it would not have been possible for him to do so, as some of the funerals took place roughly simultaneously, and many of them happened in different parts of the country. Dalglish made sure that there was at least one representative of Liverpool Football Club at every funeral, but, formidable a man though he is, there was no way he could attend them all in person.

Another irritating refrain I keep reading is of the “Well-he-wouldn’t-want-it-anyway!” variety, from people getting angry on Dalglish’s behalf when they hear he has been snubbed once again. It would be something akin to a teenager asking a girl out on a friend’s behalf, and when she says no, saying that his friend never fancied her anyway. The people getting angry are making ridiculous politicised remarks about how Dalglish supposedly “will never be given an award because he is not part of the Establishment [always undefined], and he would never accept one anyway because it would be against his principles” or words to similar effect.

The assumption is nonsense on both counts. Dalglish may not have a knighthood, no, but he was given a Royal/Imperial Honour, way back in 1984, when he was awarded the MBE. Now, with Dalglish’s working class background and his not-altogether-articulate Glaswegian accent, it is fair to suggest that he cuts a very unlikely figure to be a part of the Establishment, true enough. However, the reality is that, in spite of his background, he was offered an Honour. Furthermore, he did accept it. So the assumptions are clearly untrue.

I am not judging Dalglish on that, by the way. While I would never even consider accepting a Royal/Imperial Honour (in the astronomically unlikely event that I would ever be offered one), especially any that bears the name ‘British Empire’, I see that as a matter of personal choice. So I respect Dalglish’s right to accept such an Honour if that is his wish, and I will not think any the less of him for it.

But those who claim on his behalf that he would not accept such an award are not only unaware of the real facts, they are also trying to exploit him and his good works in order to score ‘anti-Establishment’ political points. Throughout his public life, Dalglish has been, if anything, somewhat apolitical, and therefore it is disingenuous to use him in this manner.

Whether we like ‘the Establishment’ or not, is there really any merit in exploiting Dalglish and his work after Hillsborough in this shabby fashion? I will think less of anybody who does that.