Thursday, 31 December 2009

Structural flaws and the crunch

The credit crunch is now widely accepted to be a direct consequence of regulatory reforms introduced by Gordon Brown when he was at the Exchequer.

The aim was to create "a 'world-class' regulatory system," balancing the roles and functions of the Bank of England, the Treasury and the Financial Services Authority.

In theory the clarification of responsibilies meant each were able to fulfil their specialist roles more effectively and this was credited with the eviable period of sustained growth in the economy.

However, the smooth functioning of such a 'tri-partite' regulatory system depended entirely on collective adherence to rigorous maintenance of liasion procedures and trust that each would adhere to the communication processes laid out.

But with no clear system of disincentive for each organisation to avoid subverting that trust in the event of any errors coming to light under their watch, cover-ups began to become inevitable as each started to protect their own interests and the system allowed the toxic situation to spread like wildfire until it threatened to unravel completely. The breakdown in shared individual responsibility lead to a breakdown in the very communication which could have identified the problems, isolated them and prevented them from spreading.

Just as with the musketeers, the solidarity of 'all for one' falls apart when each fails to soften his selfish vices.

So although collective responsibility sounds like a good idea it was essentially also a way for the all-powerful Chancellor to maintain control while keeping blame at arms length.

In the end it was almost logical that perversity should be the way to deal with a perverse system - as Anatole Kaletsky argued, for his role BoE chairman Sir Mervyn King should be (as he was) rewarded with another four-year term, just as Gordon Brown had been promoted from Number 11 to Number 10 Downing Street (though he'd always been in residence anyway).

Similarly I could almost rationalise that the British public will take the view Gordon Brown is the right man to sort out the economy even now. Or at least it should be his responsibility to sort out the mess he created, under stricter supervision. Though it will remain up for debate until the outcome of the general election whether the British public is actually that perverse. And I do not underestimate our capacity for it.

Anyway, all this is old news and thoroughly chewed over elsewhere.

But it does make for a dramatic comparison with the similar structural flaws coming to light which led to the chaos on the streets when my local area was hit with a blizzard recently.

The local borough council has out-sourced the management of the winter traffic maintenance and the gritting contract to different organisations, while still retaining some powers of direct oversight in extreme situations, as was the case last week.

Consequently the difficulties in sending trucks to the right places became hampered not just by conditions, but by the labyrinthine nature of communication channels required to agree an action plan, and as one thing started to heap on top of another everything began to snowball out of control.

Maybe you could argue that it was a lack of experience under testing conditions and that Berkshire will be better able to deal with a severe blizzard at rush-hour in future, but there was a strong warning about the weaknesses in local contingency planning for serious winter weather as recently as February 2009, so this is more about the principle of the thing.

I personally don't see why any politician should encourage experimenting on the public as a means to train high-level administrators and I don't think anyone will be happy to face similar trials every time it happens when all we really want to do is get home quickly and safely - just as I don't think anyone will ever be happy at the prospect of facing a major financial crisis (or major war etc) once every generation.

To put it simply, to demonstrate an inability to learn from mistakes while in office is to provide a direct disqualification for the job. Not to be open about any mistakes and any difficulties had in learning from them is to sap all confidence that you will ever be qualified.

I could draw comparisons with similar scandals, such as the expenses affair in which MPs such as the moat-cleaning Douglas Hogg (among others) argued what they did was entirely within the rules and had been cleared with the fees office in advance, despite the fact that MPs set the rules and decided on who was employed within the fees office.

Or maybe you could argue it was just bad luck that events hit in exactly the right combination to cause almost the worst possible outcome in each of these scenarios.

But politics is not about luck. Politics is about choices.

Responsible politicians recognise that the very real social consequences the rest of us face are always the product of earlier choices made by someone in authority; corruption and vice spreads invidiously in the wake of politicians who make or provide irresponsible choices.

In politics you simply cannot have your cake and eat it - there is a choice to either take other people's decisions for them or to maintain control of policy direction. There is a choice to manage situations by stumbling from crisis to crisis, or, to stand up and lead.

It is a choice of accountability. If you cannot accept the potential for chaos then it is up to you to do something about it.

And that goes for members of the public as much as any member of parliament.

Watching so many people stumble about in celebration I wonder how many who fall over will do the same again next year, and the year after... I'm just glad that most of the ice has melted.

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