Choose your historical precedents carefully

With all the talk now turning to the current Government following the Canadian model of cutting public spending during the 1990’s, its worth highlighting two articles one from a well renowned economist and one from a political editor on the pitfalls of simply transferring one country's experience to another.

The first is from the Independent's Political Editor Andrew Grice today he writes ‘The key questions posed by the Canadian government – such as should the state really be providing this service, should it be handed to the private or voluntary sector – were reproduced faithfully in a Treasury document this week. The coalition also aims to adopt Canada's open and inclusive approach to take people with it, although that will be hard. Another lesson is that speed is important to create some light at the end of the tunnel.

Yet the parallels can be overstated. Jocelyne Bourgon, a senior civil servant in Canada during the period, admits in a report for the Institute for Government that one crucial ingredient was "luck" – that there were no major external economic shocks.

Mr Cameron and Mr Clegg may not be so lucky. Canada had the United States economy next door to help it grow. On our doorstep, European governments queue up to wield the axe even where, as in Germany, economists say they don't need to. This "competitive austerity" could result in a huge rise in unemployment across Europe, destroying the coalition's hopes of claiming the progressive label. Mr Cameron and Mr Clegg need a growth strategy as well as a cuts strategy.

The second piece is from Paul Krugman entitled Oy Canada’ he writes ‘Marshall Auerback points out that the new UK government, in arguing that fiscal austerity won’t destroy the economic recovery, is pointing — wrongly — to Canada’s experience in 1990’s Actually, it’s even worse than Auerback says.

As he points out, Canada was able to offset the contractionary effects of fiscal austerity through increased exports to a booming US economy. What he doesn’t point out is that this export boom had a lot to do with exchange rates between the Canadian and American dollars.

Yep, you can have fiscal austerity without contraction if you have a massive devaluation against your main trading partner. So we can have austerity without a new depression as long as all the world’s major economies devalue against … oh, wait.

And monetary policy, of course, wasn’t up against the zero lower bound, so the Bank of Canada could and did offset fiscal austerity with looser monetary policy (which partly explains the drop in the loonie.)

I do feel a sense of despair here. Ever since the crisis began, some of us have been trying to get across the point that you have to be very careful with your historical precedents, that things work very differently when you have a synchronized severe financial crisis, with interest rates near zero everywhere. And here we are, two years in, and it’s as if we’ve been talking to a wall.

Better economic growth is something that I have been banging on about for a while to counteract some of the job losses and withdrawal of services ahead, but unless I’m wrong the new Government’s strategy seems to be cut the deficit and keep their fingers crossed for private sector growth to return, if the UK is in line for a 20% reduction in spending this, then ignoring where the growth will come from is ill thought out at best and downright dangerous at worst. (Labour was no better on growth either)

Let’s hope David Cameron and Nick Clegg are shrewd enough to not blindly follow Canada’s example or things could be even worse than predicted especially with the UK's main trade partners Europe where each country is now in a race to see who can cut their budgets the hardest and fastest.

Has the SpAd vacancy for the Welsh Secretary been filled?

Hat Tip to the FT Westminster blog

It’s been widely reported that Welsh Secretary Cheryl Gillan has appointed Sam Gibbs her former researcher as the new Special Advisor at the Welsh Office, but in a freedom of information request about the pay of all Special Advisors in the new Government published today, it clearly states on page 3 of the document that as of the 10th June there is a Vacancy for the SpAd role at the Welsh Office.

So what’s going on, has there been a rethink at Gwydyr House in light of the problems the Conservatives are having regarding Wales or is it a case of lack of communication between Government Departments that left Cheryl’s staffer off the list?

The Full list of SPAD’s and pay is HERE

The unrelenting misery continues

You can take your pick of particularly awful news in or about Wales at the moment there plenty of it around.

So here goes, the news pilots for ITV Wales have been scrapped by the new Culture Secretary Jeremy Hunt, it’s not a surprise the Tories were against them from the start and they want to introduce some sort of City TV model across the UK, so it looks like we will end up with just BBC Wales to provide all our news in future – eat your heart out President Castro.

Tory’ headbanger in chief’ David Davies in the new chair of the Welsh Affairs Select Committee at Westminster, another own goal for the Conservatives in Wales and you have to ask what geniuses made that a reality?

WAG press people are Grand Masters at finding the silver lining in any bad situation and rather than commenting on the nasty stats on poverty, low wages, elderly population needs that the latest Office of National Statistics report on the regions show, WAG highlights instead the 16% rise in average income over the past few years - well done folks.

It says a lot that barmy Lib Dem Peter Black is now the voice of reason following his warning about his UK Party leader Nick Clegg continuing to diss Wales over the referendum, the Barnett Formula Review and holding Election on the same day – is Peter going to stop wearing silly ties as well?

Plaid Cymru’s new president is Jill Evans, she of course is Plaid MEP and will replace Dafydd Iwan when he steps down – are Plaid slowly running out of well known enough individuals to fill all the non jobs the party has to offer.

And if all that wasn’t enough you can now give the new Government (and the previous one for running up the bill) some cover for when they start squeezing the budget until the pips come out and pretending to share your pain by suggesting what cuts should be made in their ‘window dressing exercise’ about defect reduction – I almost can't cope with the excitement.

RDA’s, Scottish Enterprise and Wales

With the debate over scrapping Regional Development Agencies (RDA’S) continuing inside the Conservative/Liberal Democrats Coalition, last week’s Economist had an excellent article looking at what sort of impact the RDA’s in England and Scotland had on attracting foreign investment before the recession.

And here’s what they had to say ‘Hitting on the right solution would be simpler if it were clear just what value RDAs add. Critics point out that the gap between rich and poor English regions, which RDAs were supposed to help close when they were set up in 1999, has in fact widened. True, regional economic activity may have been boosted: a report by the National Audit Office in March said that, for every £1 spent on physical regeneration projects, £3.30 had been added to output. But the NAO went on to question whether the cost, at £60,000 per job created, represented value for money.

Scottish Enterprise, the main development agency north of the border, has been trying to measure its own contribution. It asked SQW Consulting to use a novel technique to test its performance in two areas: securing inward investment by foreign firms, and helping Scottish companies export more. For each activity, the economics consultancy compared the performance of two matching sets of firms: those that were assisted by the agency, and another group that were not. This in theory provides the counter-factual comparison missing from earlier attempts to assess success.

Between 2001 and 2008, about £35m a year was spent on subsidising inward investors. The study found that, even after subtracting the inflows that unsubsidised deals suggested were possible, the activities of Scottish Enterprise added 18,000 jobs over the period, at a net cost of £14,000 per job, and £11 to Scotland’s economic output for every £1 spent. The exports campaign cost about £20m in the four years to mid-2009 and produced an extra £174m of exports, adding £75m to the Scottish economy and creating 1,100 jobs at a net cost each of £11,000.

Other analysts too rate Scotland’s performance in attracting job-creating FDI. Over the long run it has done better than any other region, with a 15.3% share of total FDI-related employment since 1997, says Ernst & Young. (London, the next most successful region, secured just 10.6%.) It did less well in 2009, however, with only 7.7% of the new jobs, whereas London more than doubled its share.

It is hard to know how much success or failure falls to the efforts of RDAs, and how much simply reflects the compatibility of local skills and infrastructure with investors’ newest notions of how to make money. John Tomaney, of Newcastle University’s centre for urban and regional development, is clear that the renewable-energy centre at Blyth, in Northumberland, would probably not have been built without the help of local RDA, OneNorthEast, enticing firms such as Clipper Windpower of California to set up a manufacturing base there. He worries that “the gain in local accountability” from the switch to local partnerships may be “offset by rivalries amongst different local authorities”.

There is certainly plenty there to for Wales’s economic policy makers to mull over as we move out of recession and try to start repairing the damage to our economy that the recession caused.

'White House adrift on Gaza aid ship, BP oil spill'

Jonathan Mann at CNN has an interesting take on Barack Obama's mounting problems over his administration's reactions the BP Oil Spill and Gaza aid flotillas.

Hw writes 'This week's deadly Israeli attack on an activist flotilla in the Mediterranean seems to have left the White House adrift.

World leaders were quick to condemn the Israeli sea assault Monday that took the lives of nine people on an aid flotilla to Gaza. U.S. President Barack Obama wasn't one of them.

Instead, Obama made private phone calls to the leaders of Turkey, where the journey was organized, and Israel. Administration officials publicly urged the Jewish state to release the activists it had seized and conduct an investigation into exactly what happened.

But Obama said nothing publicly until an interview with CNN's Larry King late in the week.

"It was a tragic situation. You've got loss of life that was unnecessary. So we are calling for an effective investigation of everything that happened."

Accounts of the incident varied significantly and some details were slow to emerge. It wasn't clear, for example, when the president learned that an American-Turkish dual citizen was among the dead or if that development would affect his even-handed approach.

Some Republicans didn't wait to choose sides.

"No one likes to see the loss of life," said Republican Congressman Mike Pence.

"But Israel has a right of self defense. And the reality is that Gaza is essentially an isolated, smaller version of a terrorist state. It launched lethal attacks against Israeli civilians in the form of thousands of rockets, and this blockade has saved lives."

The Israeli attack had one thing in common with the BP oil disaster that began more than a month earlier off the southern U.S. coast: they've forced the Obama administration to navigate its way through a mishap of someone else's making.

Many Americans have complained that the president seemed too passive in the days after the oil leak started, leaving BP to address the emergency. Some people outside the U.S. complained that the administration was too passive after Israel's attack too.

"I have to be frank: I am not very happy," Turkish Foreign Minister Ahmet Davutoglu told reporters. "We expect a clear condemnation."

The United States wants to encourage oil companies to supply it with ample, inexpensive energy and, at the same time, it wants to safeguard the environment. The United States wants to be Israel's protector and, at the same time, it wants to calm tensions and improve its standing in the Muslim world.

It can be difficult to head in such different directions. After the two mishaps at sea, the White House has appeared to its critics and even some of its friends, to be just treading water.'

Who would want to be a World leader?