Comment

From the FT’s comment section:
Martin Wolf: The challenge of halting the financial doomsday machine
John Kay: How our leaders get to grips with a scare story
Peter Clarke: Britain’s third party looks to history
Jacob Rothschild: Europe is getting it wrong on financial reform
Arvind Subramanian: China is the key to unwinding global imbalances
Christoph Meyer: The dangers of excessive air safety
Editorial: IMF fastens the policy tightrope
Editorial: Sudan’s election
Editorial: A rotten borough
Global Insight: William Wallis, Polls raise fears for Sudan democracy
Market Insight: John Plender, When clever insiders are pitted against naive outsiders
Notebook: Sue Cameron, Mandarins have that sinking feeling
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Gideon Rachman: Anger erupts for a volcanic exile
Philip Stephens: Clegg snatches Cameron’s winning card
Michael Skapinker: We need bold action to slow obesity’s march
Roger Altman: America’s disastrous debt is Obama’s biggest test
Editorial: A more measured reaction to the ash
Editorial: Lib Dem bounce
Editorial: Swaps showdown 
Markets Insight: Mansoor Mohi-uddin, Beware the impact of a resurgent greenback 
Global Insight: John Paul Rathbone, Brazil’s faces barrier to UN security seat
Notebook: Brian Groom, TV debates we would have loved  
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Clive Crook: America and Europe meet midway
Wolfgang Munchau: Greece’s bail-out only delays the inevitable
Frank Partnoy: Wall Street beware: the lawyers are coming
Michael Lind: Hysteria that plays into the hands of Osama bin Laden
Editorial: Garzón at bay
Editorial: Thailand’s silence
Editorial: US over the moon
Global Insight: John Gapper, Google ripple effects rock net generation
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Philip Stephens: Pope Benedict has turned his back on a church in crisis
Martin Wolf: Growth is the fix for British finances
Jamie Bartlett and Richard Reeves: Ridicule is a weapon against terrorism
Charles Emmerson: What Moscow wants in the Arctic
Nancy McLernon: America’s unfair double taxation
Editorial: China must steer – not slow – growth
Editorial: Europe evolves
Editorial: Iceland’s revenge
Global Insight: Haig Simonian, Mood shifts against Swiss banking secrecy
Market Insight: Gillian Tett, Mathematicians must get out of their ivory towers
Lex: The agenda-setting column on business and finance

James Mackintosh

Nouriel Roubini built his reputation, and that of his Roubini Global Economics consultancy (RGE), on his gloomy, but accurate, predictions of financial doom. He isn’t always right though; and the decision by RGE to publish a call for a military overthrow of the democratic Brazilian government is clearly a mistake.

Ricardo Amaral, a Brazilian economist, pulls no punches in an article on the RGE web site (EDIT: RGE has taken the post down. Here’s the Google cache of the article):

I am suggesting that the military should seize power again in Brazil through a coup d ‘état, because we all know that this massive crime problem that is devastating the Brazilian population can’t be solved under a democratic system of government, and because of the actions that have to be taken to bring peace to all neighborhoods in Brazil. It is time for a benevolent military dictator to take power in Brazil and get the job done.

Mr Amaral even recommends General Augusto Heleno Ribeiro Pereira, commander of the UN Stabilisation Mission in Haiti, as a possible candidate.

This comes after hagiographies of the last three “benevolent dictators” of Brazil, who he credits with laying the groundwork for Brazil’s economic success.

Under the dictatorship of a civilian politician, and later under the dictatorship of the military important economic changes were adopted and implemented in Brazil that planted the seeds for long-term Brazilian economic prosperity.

So who is Mr Amaral? It turns out he’s a direct descendant of José Bonifácio de Andrada e Silva, Brazil’s “patriarch of independence” – and Mr Amaral’s first example of a benevolent dictator, although technically he was minister under the then Prince Regent. Mr Amaral wrote a book about him: “Jose Bonifacio de Andrada e Silva – The Greatest Man in Brazilian History”.

Would Mr Amaral take a post in a new military government? No idea. But here’s what he says in his biography:

Mr. Amaral is a member of the two most politically influential families in Brazilian history the “Andrada Family” and the “Souza Queiroz” – The “Andrada Dynasty” in Brazil is still alive and well, and in the last 200 years we had more than 50 members of our family who were Prime Ministers, Finance Ministers, Secretary of various branches of government, state Governors, Mayors, Attorney General, various Ambassadors, and so on.

It is worth highlighting that RGE explicitly distances himself from anything written for its Economonitor web site, which aims to reflect different views; a sort of online op-ed page. From personal experience I can say it is often hard to convince readers that opinions expressed on the FT op-ed page are not necessarily the opinions of the newspaper; it will be harder still for an economic consultancy to pull that off. One has to wonder how welcome Mr Roubini will be in Brasilia from now on.

From the FT’s comment section:
David Pilling: Japan’s splendid isolation may be at risk
Daniel Gros: Only Athens has the power to rescue Greece
John Gapper: A short story of a star hedge fund
Max Hastings: Why Cameron has the right character to rule
Editorial: Strong on liberty, weak on the deficit
Editorial: Hedge rows
Editorial: Oily transparency
Markets Insight: George Buckley, History holds answers to the impact of Tory fiscal tightening
Notebook: Robert Shrimsley, An invitation to govern: regrets only
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Martin Wolf: UK economy must perform a rebalancing act
Robert Sloan: The bankers need to fight back
John Kay: Economics may be dismal, but it is not a science
Wen Liao: Bismarck’s lessons for Beijing
Editorial: A Tory manifesto for the good times
Editorial: Court vacancy
Editorial: Strife in Thailand
Global Insight: David Gardner, Challenge of Jerusalem tests Washington
Market Insight: Russell Napier, Tower of debt will force roll back of free markets
Notebook: Sue Cameron, Kingmaker Gus plans his reshuffle
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Philip Stephens: Britain is arguing about the past
Slawomir Skrzypek: Poland should not rush to sign up to the euro
Dominique Moïsi: How France fell out of love with Sarkozy
Michael Skapinker: Replacing the ‘dumbest idea in the world’
Editorial: Labour lacks will to shrink the state
Editorial: Post-crisis malaise
Editorial: Hungarian demons
Global Insight: Matthew Green, Karzai’s gestures fail to hide strain in ties
Market Insight: Jim Paulsen, The debunking of fear signals further stock market rallies
Notebook: Brian Groom, A spotlight on the real Britain
Lex: The agenda-setting column on business and finance

James Mackintosh

Having run short of ways to distract British voters from the need for drastic cuts, both Labour and the Conservatives have seized on mutuals as part of their strategy. Mutuals, the thinking goes, are nice cuddly non-profit organisations that pose no threat to the future of the planet or the future of finance – unlike nasty profit-hungry multinationals and banks.

On Monday, Labour’s manifesto (complete with a 1930s-themed cover featuring socialist realist art designed to make one think Gordon Brown statues could soon spring up around the country) pledged more mutual involvement in everything from banks to public houses. Here’s the full list of Labour’s mutual pledges:

  • Finance: “will consult on measures to help strengthen” mutual financial services firms. Will “encourage” a mutual solution for Northern Rock (although it is clear there won’t be one, since it also promises to ensure value for the taxpayer)
  • Transport: will “welcome” bids from mutuals, among others, for rail franchises
  • Childcare: will “pioneer mutual federations running groups of local Children’s Centres in the community interest”
  • Health: “across the NHS we will extend the right for staff, particularly nurses, to request to run their own services in the not-for-profit sector”
  • Football: “Registered Supporters Trusts enabled to buy stakes in their club”
  • Pubs: “We will support pubs that have a viable future with a new fund for community ownership”
  • Old buildings: will “review the structures that oversee English Heritage, putting mutual principles at the heart of its governance so that people can have a direct say over the protection and maintenance of Britain’s built historical legacy”
  • Canals and rivers: “British Waterways will be turned into a mutually owned co-operative”

So far, so populist. After all, how could the John Lewis-shopping classes be against mutuals? (For anyone who hasn’t realised, the department store and supermarket group is owned by its employees, who shared a bonus pool of £151m last year as a result.)

I like John Lewis. But Labour – and the Tories, who are also pushing mutual ideas – have misunderstood the lesson from the success of John Lewis. Its mutual model may contribute to its culture, and give staff an incentive to help customers; but equally, it may not. After all, many shareholder-owned retailers also offer strong customer service and value for money. What is clear is that fierce competition in retailing gives the company, and hence its management and staff, a strong incentive to provide keen pricing and good customer service.

What of the rest of the mutual sector? Currently, the biggest mutual businesses are building societies and insurers, plus the Co-operative retail-to-banking group. Supporters of mutuals make a clear distinction: the building societies that converted to banks had to be rescued (Northern Rock, Bradford & Bingley, HBOS and Alliance & Leicester); the building societies that stayed mutual did not. Mutuals, supporters argue, are inherently less likely to blow up because they are “less prone than banks to pursue risky speculative activity”.

Unfortunately, this just isn’t true. It is not just that Dunfermline building society blew up spectacularly after pretty much the same misguided property investments as HBOS. It is not just that Presbyterian Mutual Society in Northern Ireland collapsed after a bank run, just like Northern Rock, and had made lots of buy-to-let loans, betting on the frothiest part of the mortgage market bubble. It is not just that 10 troubled building societies, most recently Stroud & Swindon, were rescued by mutual friends in the sector.

What really shows the lack of safety of the mutual movement is that the last major banking crisis in the US, the savings & loans disaster, was in fact a systemic failure caused by the US equivalent of building societies, most of which were mutual. Before that, America’s mutual savings banks fell as a series of dominos in the early 1980s.

Of course, this is not to say that banks are perfect, to put it mildly. But my point is: neither are mutuals.

As with everything, it is a question of incentives. Mutuals run by their staff – such as GP practices, owned by doctors, or Lambeth’s local authority leisure centres, outsourced to a mutual – are naturally run to suit their owners. This can lead to terrible service, as at Lambeth’s swimming pools, or short working hours at inconvenient times for patients, as in doctors’ surgeries. Competition can stop mutuals becoming self-serving, as with John Lewis, but it is hard to apply competition to GPs or large leisure centres.

This is why the Tory plans are also likely to fail, if implemented. David Cameron wants “to let nurses manage their own clinics, job advisers take over employment offices and teachers run their own schools”. Are they likely to favour staff or customers/patients/students? My guess is that if staff have no one but the government looking over their shoulder, the organisations will have even more trouble motivating staff to work hard and provide great customer service than other ownership models.

Here are my three top problems with mutuals:

The first is corporate governance. The people who run large mutuals have almost no accountability to their owners. True, shareholders in big businesses relatively rarely act to throw out management; but the management of underperforming companies are frequently ejected through hostile takeovers. The lack of accountability of management at mutuals is a serious problem if they operate in a less than fully competitive environment. The wave of demutualisations in the 1990s made management at the remaining mutuals far more accountable than it had been; but public pressure has died down since the prospect of payouts went away, and renewed member apathy has left management with few checks on what it can do.

Second, linked to this, is the question of efficient use of resources. In competitive markets mutuals have the same pressures as non-mutuals. But in less competitive markets, such as banking or medical care, mutuals are under little pressure from their owners to use resources efficiently; if they are staff-owned, rather than customer-owned, they are likely to face pressure from their owners for the inefficient use of resources, in the form of above-market pay levels.

Third, mutuals distort the allocation of resources in the economy, by tying up capital far more tightly than any public company. If they are run inefficiently, they cannot be taken out in a hostile takeover, and may – particularly under a Labour administration – find it easier to access state funds to keep them in business.

From the FT’s comment section:
Wolfgang Münchau: A Greek bailout at last but no real solution
Yang Yao: Renminbi adjustment will not cure trade imbalance
Clive Crook: In search of a moderate Republican
Alan Schroeder: How politicians can jazz up live debates
Editorial: Tragedy will prove Poland’s strength
Editorial: Nuclear options
Editorial: No iron grip
Lex: The agenda-setting column on business and finance

FT dot comment

FT dot comment is no longer updated but it remains open as an archive.

Politics, economics, high finance and morality – this blog addresses the issues being considered by the FT’s comment team, and their thoughts.

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.


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