Monday, July 15, 2013

It is time to confront crony capitalism


From Brother Ivo:

The growth of massive 'logistics' firms like Capita, Serco and G4S has occurred under both Labour and Conservative/Liberal Democrat administrations. They are employed in a variety of circumstances across a wide range of Government departments from Education, Justice, Defence and Immigration to Transport, Health and Leisure.

They are specialists in outsourcing and, as such, have built massive contacts with central government in this country and abroad. Serco, for example, is contracted inter alia to assist the implementation of Obamacare in the USA; G4S is the world's third largest private employer; and Capita 's turnover for 2012 was £3,352,000,000.

These are big companies by any standard and measure, which makes it all the more difficult for any government when their honesty and integrity comes legitimately into question. They have become unassailable in the public space, and so fall foul of Brother Ivo's dictum - 'When people/companies become indispensable, you have to let them go.'

When the story came to light of a possible £50million fraud of the taxpayer by two such service providers, it shook Government ministers to the core. They quickly declared that they would sign no new contracts with such businesses, and bought time with the excuse that they were systemically incapable of monitoring such complex systems to offer further guarantees of probity. They said they had been roped into the scandal of the preceding government by making clear that these problems may have actually begun more than eight years ago.

Instead of looking solely at the companies (though this must be comprehensively investigated), do we not need to ask about the complexity of organisation, remit and control that fosters problems of this kind?

At root, we have government that has expanded its role and ambition to such an intrusive extent that it needs the support of economic leviathans that have become 'too big to fail'. Even if they wanted to punish these companies by withdrawing contracts, they could not logistically do it. Not only are there no other companies to step into the void, but our government is so enmeshed that they could not extricate themselves from the outsourced 'tar baby' even if they want to.

It would be a brave backbencher who asked the parliamentary question: 'How long would it take to re-allocate contracts from these three companies, and what would it cost?' The answer would be shocking.

It was bad enough when we realised that we could not allow certain banks to fail, but MPs from all parties were able then to puff themselves up with outrage as nobody could easily associate them with complicity. But this scandal is worse. Our entire political class has allowed the outsourcing/data/logistics industry to become the elephant in the room. We cannot discuss it because the consequences of their disgrace or failure would paralyse government of any discription.

This is what crony capitalism looks like.

Government needs the out-sourcers; the out-sourcers need government. They have close, necessary and easy access to each other. There are consultants and consultancies to complicate the story.

We have come a long way from the days of EF Shumacher and his 'small is beautiful' philosophy - a way of thinking that influenced those on the Left and Right alike, and, indeed, the then emergent Green Party before they, too, fell in love with big government.

Schumacher drew his inspiration from an earlier thinker whose approach was slightly more nuanced. The right approach, thought Leopold Kohr, was appropriate scale: 'Whenever something is wrong something is too big.'

Brother Ivo does not know if Douglas Carswell has read Kohr or Schumacher, but his thinking on I-Democracy is plainly along the same line of thought.

The G4S and Serco £50million fraud inquiry highlights a scandal - even if they are found not to have swindled the taxpayer. But if they did, they may have inadvertently done us all a favour by making us all think seriously about the dismantling of a mechanism in which a handful of companies are too close to the political class, which is already increasingly seen as remote from those whom they represent.

Un-evictable bedfellows make Brother Ivo very suspicious.

25 Comments:

Blogger Darter Noster said...

But Brother Ivo, where would the poor retired or out-voted Cabinet Ministers, who've been shovelling them contracts at a frantic pace, go for their juicy £100,000-per-year-for-3-hours-a-week directorships? And what about the poor MPs forced to starve along at £75,000 a year? Where would they get their large "consultancy" fees from? Not to mention the lucrative job offers when they leave politics?

No, no no, this would never do!

15 July 2013 at 08:17  
Blogger David Hussell said...

Truly excellent article Brother Ivo, so thank you.

Yes the Schumacher "small is beautiful" idea has much to commend it. Small and medium sized firms are the backbone of vibrant economies such as Germany, and represent a way of potentially, boosting employment here as well. However it is the big companies that love our membership of the EU, as the complex rules, keep other smaller competitors from becoming serious competitors to them.
In my experience of Government, in my working life, the bigger the organisation the more wasteful it became. It is a pity that the Schmaucher idea does not fire up another generation, and my own, which has forgotten about it, largely.

15 July 2013 at 08:40  
Blogger Drastic Plastic said...

I know of an example where Capita have been inserted into a bunch of contractual arrangements by the government, and promptly started trying to twist the whole thing for their own advantage and the government's disadvantage. All they do is add cost, and cause trouble.

15 July 2013 at 09:55  
Blogger David Hussell said...

Power corrupts undoubtedly.
If there is a serious danger of a "government" behind the elected Government, exerting influence, contrary to the interests of the taxpayer and the wider country, what's to be done about it ?

15 July 2013 at 10:01  
Blogger Jay Bee said...

What indeed. Ideally these large contractors need to be broken up to create more competition and encourage new firms to enter the market.
In practice this will be very difficult because they are increasingly multinational and there are too many vested interests that benefit from the current cosy arrangement.

15 July 2013 at 10:13  
Blogger IanCad said...

You've got it Brother Ivo!

Corruption, patronage; scratch the surface and I'll bet it's all there.

The "Abomination of Peculation" in the highest places perhaps?

15 July 2013 at 11:02  
Blogger Corrigan said...

We read of this "crony capitalism" all the time; why does nobody ever associate it with its creators, Margaret Thatcher and Ronald Reagan?

15 July 2013 at 11:57  
Blogger Jay Bee said...

Here's another scandalous example of government lunacy where private companies profit at consumers expense.

http://www.dailymail.co.uk/news/article-2362762/The-dirty-secret-Britains-power-madness-Polluting-diesel-generators-built-secret-foreign-companies-kick-theres-wind-turbines--insane-true-eco-scandals.html

All driven by EU renewables directives of course.

15 July 2013 at 12:28  
Blogger Richard Watterson said...

What needs to be confronted is the fact that privatisation doesn't work. That's what all this tells us.

15 July 2013 at 12:51  
Blogger John Henson said...

Corrigan said...
We read of this "crony capitalism" all the time; why does nobody ever associate it with its creators, Margaret Thatcher and Ronald Reagan?


Perhaps it's something to do with the fact that they didn't create it?

15 July 2013 at 12:51  
Blogger Darter Noster said...

Richard Watterson,

"What needs to be confronted is the fact that privatisation doesn't work. That's what all this tells us."

Whereas, of course, enormous state monopolies run by civil servants and dominated by Trade Union bosses did the country proud with their efficiency, probity and pay restraint.

15 July 2013 at 13:47  
Blogger bluedog said...

Corrigan @ 11.57, you've clearly not read President Dwight Eisenhower's warning to the American people about the dangers of the US military-industrial complex. Words delivered 25-30 years before the Reagan-Thatcher era.

15 July 2013 at 14:02  
Blogger Corrigan said...

That the business community has sought at all times to corrupt politics is not in question; the elevation of this corruption into a political philosophy accepted by the political elite and actually taught at universities as a preferred system of government, however, is very much a product of Thatcherism and Reaganomics. We call it "neo-Liberalism"

15 July 2013 at 14:11  
Blogger bluedog said...

Another excellent post, Brother Ivo, and you are right to highlight the serious risks inherent in the creation of these private armies such as G4S, Serco and the even more sinister Blackwater in the US. Perhaps we should also include the extraordinary growth of the state's intelligence services such as MI5 and MI6 in the scope of the debate.

Our democracy depends on accountability in the use of lethal force by the state, both in its internal and external activities. The activities of the secret services are, well, secret, and the activities of the private armies are, well, private. Putting the two together so that the secret and the private are in collusion will result accountability and restraint disappearing completely. Indeed, one can imagine operational opportunities for the secret and the private to benefit mutually from each other's services.

Inevitably the subcontracting by the state of force and potentially lethal force into private entities raises the possibility of some very unsavoury practices. After all, if return on capital employed is the criteria, along with increasing dividends for shareholders, a security company risks going down a very dangerous path to please its shareholders. Getting the police to tell the truth is hard enough, as David Cameron himself recently inferred.

But the secret services will never tell the truth as a matter of policy, and a powerful private security company is uniquely equipped to corrupt the polity, the police and the criminal justice system.

Happy days.

15 July 2013 at 14:27  
Blogger A.K.A. Damo Mackerel said...

It's not crony capitalism, it's simply cronism which has been with us since forever.

'' For who was there of you all that would reckon himself lord of his own goods, among so many snares and traps as were set therefor, among so much pillaging and plundering, among so many taxes and tallages, of which there was never end and often time no need, or if any were, it rather grew of riot and unreasonable waste than any necessary or honourable charge? So that there was daily plundered from good men and honourable, great substance of goods, to be lavished among unthrifts so extravagantly that Fifteenths sufficed not, nor any usual names of known taxes; but under the easy name of “benevolences and goodwill,” the commissioners of every man so much took, as no man with his good will would have given. As though the name of benevolence had signified that every man should pay, not what himself of his good will was pleased to grant, but what the King of his good will was pleased to take. Who never asked little, but every thing was raised above the measure: amercements turned into fines, fines into ransoms, small trespass to misprision, misprision into treason. ''

http://www.salisburyreview.com/blog/Blog_Theodore_Dalrymple/Entries/2013/5/29_Taxed_beyond_Endurance.html

It is also called rentseeking.

15 July 2013 at 16:04  
Blogger Office of Inspector General said...

Could be much worse Ivo. Those firms you mentioned could all be state run concerns, with ineffectual management, and no aims or ambitions. As for relieving the public purse of 50 million unfairly, one suspects cheques are about to be quickly drawn. The amassing of that kind of ill gotten fortune has custodial sentence written all over it, what !


15 July 2013 at 18:48  
Blogger bluedog said...

Brother Ivo, going further, communicants may note that most Islamic governments are highly repressive of their own populace. It seems that Islam generates foment and unrest amongst the Ummah even when the rulers are themselves Islamic. The chosen tool for repression of the Ummah is invariably the Mukhabarat, or secret police. One notes that all the best Islamic dictators emerge from the secret police, if not the military, Saddam and Nasser being cases in point. Islamic monarchies such as the House of Saud are equally dependent on the Mukhabarat, but seem to enjoy greater legitimacy and thus stability than Islamic republican governments. Of course, one non-Islamic state with a significant Islamic minority and a history of suffering from Islamic conquest, the Russian Federation, is also prone to being ruled by alumni of its own version of the Mukhabarat.

Is it merely coincidence that the rise of Islam in the West is leading to an explosion of activity in Western equivalents of the Mukhbarat? One suspects not.

It is only eighteen months until the 800th anniversary of the signing of the Magna Carta at Runnymede. This communicant lives in dread of the insincere platitudes that will be uttered by the political elite about the defence of ancient freedoms and liberties on that day in 2015. Freedoms and liberties which are now threatened as never before. The Magna Carta itself is in danger of becoming an embarrassing reminder of the way we were.

How long before a British PM emerges who was formerly an officer of the British Mukhabarat?

O, it was all so easy before we were burdened by the threat of Islam. What to do?

15 July 2013 at 23:20  
Blogger carl jacobs said...

bluedog

President Dwight Eisenhower's warning to the American people about the dangers of the US military-industrial complex.

The mili.. oh you mean the Arsenal of Democracy. At least that is what is was called in 1940.

carl

16 July 2013 at 02:17  
Blogger David Anderson said...

Regarding the graphic, I'm glad that someone else is spotting the pattern:

1) Government spots a problem in families/charities/businesses
2) Government awards itself more powers in those spheres
3) Problem gets worse
4) Go to 1)

16 July 2013 at 08:45  
Blogger bluedog said...

This comment has been removed by the author.

16 July 2013 at 08:59  
Blogger bluedog said...

Mr Carl @ 02.17 says 'The mili.. oh you mean the Arsenal of Democracy. At least that is what is was called in 1940.'

It is possible that circumstances may have changed between 1940 and 1958, when Eisenhower made his comment about the military-industrial complex. Eisenhower was a brilliant politician, unlike other high profile WW2 US generals such as Patton or MacArthur. One could argue that Eisenhower's comment was a typically Democrat statement was rather than a Republican statement.

16 July 2013 at 09:02  
Blogger carl jacobs said...

Bluedog

The origin of the phrase is not nearly so important as the demographic behind its usage. It is typically used by:

1. Bitter socialists who saw the US military as the principal bulwark against the advance of the world-wide socialist revolution.

2. People who think wars are caused by the existence of weapons.

3. People who cast covetous eyes on the military budget for their own particular priorities.

Until they need it. And then they call it the Arsenal of Democracy.

A military without effective weapons is a glorified jobs program. It takes a sophisticated industrial infrastructure to produce those weapons. And the lead time for making them is too long to build them once the war starts. So you have to build that infrastructure and you have to build those weapons before the fact. Or you can get your ass handed to you in a fight. It's a simple choice.

carl


16 July 2013 at 11:11  
Blogger Drastic Plastic said...

We don't associate crony capitalism with Reagan and Thatcher since they didn't believe in it. It was those who rode in on their coattails who did it; the city wide-boys who did well out of the 80's. Crony capitalism is a keynote of the Tory Left, not the Tory Right.

16 July 2013 at 13:09  
Blogger bluedog said...

So we can agree, Carl Jacobs!

Recommended reading: The Rise of China vs the logic of strategy, by Edward Luttwak.

Validates your comments about the need for industrial infrastructure and dual-use of same.

16 July 2013 at 23:19  
Blogger ukFred said...

To those who claim that the alleged overcharging by Serco and G4S shows capitalism is corrupt, I would ask you to look at the oversight by public sector officials over the abortion mills in Philadelphia, as illustrated in the recent case of Kermit Gosnell. Humans are corrupt. We have fallen from the image of God in which we were originally created. To minimise the corruption we need to minimise the state, and to reduce the size of the contracts necessary for the survival of society that are being put out to tender so that they become more easily understandable by those whose job it is to monitor them. Let's face it, £50,000,000 would pay for a reasonable number of audit clerks.

17 July 2013 at 20:30  

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