SUNDAY ESSAY: Why an economic Ice Age is unavoidable.

Don’t imagine nice weather can banish climate change.

Friday’s news that September had been the best month for equities since 1939 gave me that same frisson I had last month. Then, I was writing a piece about how the sort of change about to be inflicted on us made August 2010 similar to August 1914.
The average person doesn’t like change, and will therefore perform any mental gymnastics – however inverted – in order to go on believing in the status quo. To be fair, most of the time they’re right: there’s a wobble, much wailing, and then things return to some form of normality. But this isn’t one of those times.
The last time I felt the way I do now (I have done for over four years) was in 1975.  It was glaringly obvious that the TUC was running Britain, and the Labour Government had lost the will to resist them. Some of my more deluded Lambeth mates saw this as the vanguard of the revolution, and it took a great deal of patience to explain to them that in reality, the chances were it was an extreme hubris about to be punished severely.
Even as late as 1977, I thought there would never be enough electors prepared to vote for somebody quite as ghastly as Maggie. And yet, by 1979 I was one of them – the only time, as it happens, I’ve ever voted Conservative in any election about anything. It was the right thing to do, because the undemocratic power of the trade unions (and their illiberal attitudes to the workplace) had gone beyond archaic practice and into arcane bullying.
They say the seeds of the next revolution are sown by the changes of the last one, and I certainly think that’s what happened in 1979. My hope was that the SDP would take the extreme out of both Left and Right, and give British business the chance to have fifteen or more years of very clear restructure and redirection. As a middleish to senior businessman at the time, there was little doubt in my mind that this was what we needed, but it was not to be.
I am now extremely glad this didn’t happen, because as I became active in the SDP and then the Alliance, it dawned on me that none of them had any commercial vision. Not only that, they were tiresome to be around – far too earnest – and incapable of accepting anything in the way of a creative idea. Even back then, in 1985, disorganised rigidity was the order of the day in the centre-Left. (Blair later took this as his model, and shaped New Labour in its image.)
But to say “Britain changed forever” after 1979 is nonsense. Mobile communications and the internet wrought an infinitely more profound change than anything political. As the lax morality and consensus for welfare fostered in the 1960s wasn’t challenged in any real way, familial breakdown and dreadful parenting continued apace. So too did awful State education. The two things that Thatcherism did change forever – manufacturing and banking – were both ultimately seen to be a policy mistake, in that the Conservatives didn’t replace either the industries or communities they destroyed….and began to foster the belief that risk-banking, financial expertise and selfish greed must in the end benefit everyone.
It was about this time (circa 1990) that I became a lone renegade who argued non-stop with everyone round London’s supper tables. Never have I felt so isolated in my views, and yet so categorically certain that I was right. It was a strange time, brought to a head by the Blair victory in 1997, an outcome I seemed to be unique in thinking an even bigger disaster for Britain than Thatcherism. (So alienated was I by the obvious certainty of a Labour landslide, Jan and I took ourselves off to the West Indies for the duration of the election on the back of an unexpected windfall).
So why is 2010 – 2014 going to be on a different scale of change – for the world in general, and for us too? The answer is, because an historico-economic cycle is coming to an end: a cycle during which Britain became fatally attracted to two utterly delusional ideas – that we could ignore cheeky idlers taking the State for a ride, and ignore greedy bankers taking the public for a ride….both in the name of ‘progress’.
The first or ‘cheeky’ group was the TUC/immigrant/ethnic/gender-mad/underclass/pc/pro-EU alliance of crafty and/or stupid folks who thought they could slumber through Britain’s slow decline. The second is (still is) the ‘greedy’ group full of trickle down wealth/Friedmanism/globalism/spin/political expediency/bonusing/targets/profits/shareholder/bourse/growth bollocks who think they can pull any stunt and get away with it.
What these groups have in common is their unshakeable belief in their personal entitlement. There is no difference at all in my mind between between the truculent ethnic female who says “But I’m ‘titled inneye?” and the banker who insists he is a Master of the Universe – and thus quite justified in any action, however unethical and cruel. Both suffer from the same disease that is slowly killing Britain: the desire to be privileged.
The other commonality they share is the politicians (pretty well all of them) who have dedicated themselves to unjustly awarding that privilege as and when expedient.
Their shared superiority complex has come to a head now because – as nearly always happens when a historic shift is about to happen – rather than cancelling each other out, the two delusional groups continue to exist side by side. Hence the catalyst we see at work everywhere today: the ignored privileged poor challenging the ignoring privileged rich…..two unstable tectonic plates about to wreak a socio-economic earthquake right off the Richter scale. 
Whether this happening at the end of the cycle I mentioned earlier is chicken or egg could turn into a discussion historians will have until the next one comes along. But that the cycle is real enough seems to me difficult to deny – unless you are a dialectical Marxist, in which case you can make anything you like either irrelevant or crucial, depending on what you’re trying to prove.
The cycle I’m describing began in the late 1950s in the West, and matured at some point in the late 1980s. It is primarily an economic one, dictated by a number of factors.
The first was the decision by moribund pension and insurance companies to invest a proportion of their customer funds in the stock market – and then eventually, an eclectic range of fairly safe sectors among commodities, property, land and so forth. Before 1956/7, if you look back at the numbers, such assurance institutions played ultra-safe by buying gilt-edged securities guaranteed by governments. Unpleasant swarthy people in South America and the Near East might be untrustworthy, but not the Great Nations.
The move away from rock-solid eventually became the norm – and as long as heavy regulation and high capital requirements dictated probity, there was very little to do except sit back and watch the golden age of pensions unfold.
One of the first sectors identified as woefully undervalued was property. Householders too – given Agent valuations well beyond their expectations – began to catch on. DIY became the thing, and a new multiple retail sector was born.
Into that sector came the supermarkets, given a new buying edge by the abolition of retail price maintenance in 1959. Retail property became a sector in its own right: property was segmenting as an investment. The same thing happened in many sectors, until the modern-day fund manager was born – partly judging the right sub-sectors to be in, partly specialising in one or two.
Even the bourses (Stock Exchanges) segmented very quickly now, as did banks – a lucrative merchant sector developing massive income streams from company launches, mergers and acquisitions. New launch markets like the USM (and much later, AIM) increased the volume of business – and also of course increased the share of capital funding being undertaken by the bourses.
The rise and rise of the bourse as a source of money for both public and personal capitalism is thus a relatively recent thing. As is the ordinary person’s interest in property…….and the idea of the assurance sector not being entirely assured about what it’s investing in, given the growing complexity of the markets.
All this time, Britain was falling behind as a producer of manufactured goods for export. We would’ve been insolvent as a nation (with or without Thatcher) by 1980 at the latest, had it not been for the fortuitous discovery of North Sea Oil.
This illusion of national wealth added to the sense of wellbeing already created for many property-owners by the fits-and-starts rise in property values. The sale of council houses for peanuts to their new owners – and a wave of privatisations – added yet more belief to this false sense of material wellbeing.
Annuity rates were rising, the equity and property markets were booming, the old State industries and mucky mines and restrictive union practises were gone. It was The New Paradigm.
There were just two problems with what happened after 1980: Thatcher gave away the potential capital from privatisations by lowering personal taxes; and awarded very light taxation to the newly deregulated City. Not only did she not invest any money in Britain’s infrastructure, she also firmly believed that the Big Cheeses in business would reinvest the profits – rather than simply award it to themselves and the shareholders. She was mistaken in this belief. (Thirty years later, Patricia Hewitt was equally mistaken about the social and ethical instincts of GPs).
And once Mrs T’s hegemony passed, Blair and Brown – after an initial public display of prudence – spent what was left of the oil and City profits, having first taken the precaution of selling a lot of useless shiny metal in the Treasury.
Any real capital wealth still held in the UK after 2007 then went on bailing out the banks which – when not raining bonuses on their staff – had spent the intervening years lending money to people who couldn’t pay it back.
If this seems like simply a tale of how we went from new paradigm to not having a dime, then I’m not doing the history justice: after 1985 and the predominance of Reaganomics, there never was a new paradigm in the West. All that happened was globalist business – financed by mega-bourses and lined up by banks – decided it wasn’t satisfied with centre stage: it pushed everyone else out of the acting profession. All the extras – the small retailers, the skilled workers, the labourers, the nurses and the little people everywhere – got blacklisted and told they had but one job left: to consume.
Eventually, the Bourses and banks became more ‘important’ than the assurance sector that got them started on the third rung of the escape ladder – and much more powerful than the governments who turned a blind eye to their breakout over the asylum wall.
In these last three, finally bankrupting years, the banking sector (and its fellow bin-inmates the bourse traders and Hedge Funds) basically destroyed the UK’s ability to run a welfare sector – and as near as damn it emptied the Treasury. In the EU, they created first a Free Credit Zone and then a Loan Desert. And in the USA ,they dramatically speeded up a process made inevitable by the defeat of Maoism in China: the decline of the US as the leading global economic power.
China is the only new paradigm we’ve had. Everything else has involved the West at every level of government and society shooting itself with clinical accuracy in both feet. As I write, Ben Bernanke and Jean-Claude Trichet are taking aim at the head; given their past record on competence, there is a fair chance they will miss.
All these are the (to me anyway) fairly obvious reasons why this isn’t just a recession, another crash, a depression, a slump, or just a downpour on Barack Obama’s parade. This is Big Time economic climate change on a scale not even James Delingpole will be able to deny by the time it’s finished.
The climate parallel is a good one, I think. What we have at the moment is a majority of very nervous people in the Establishment and the media telling us that we’re experiencing turbulent weather – what the weather-forecasters used to call ‘freak weather’ before somebody decided this was freakist, and must therefore stop immediately.
C5 is the apt* name I’m giving to the summary of how an unfortunate (but in most ways predictable) collision of factors has made this new Economic Ice Age a certainty. The five C’s in C5 stand for:
Complexity, crookery, competition, crackpots, and correctness.
That is to say, crackpots gave us potty economic theories about money trickling down, and competition always resulting from deregulation. The notional mirage of wealth thus created encouraged the idea that Government employees enforcing correctness in all its forms might be affordable. In turn, complexity enabled insane lending practices and niche swaps to become the norm – and thus both bamboozle and then bankrupt the marks who were conned by the crookery of those who sold them.
The sixth C – China – is not actually the elephant in the asylum – it’s emergence has simply made the symptoms apparent earlier. And it isn’t just the confluence of these factors that makes the Ice Age a certainty: it’s the sheer scale of the cost of first ending it  – and then destroying it to make way for something better. Think on these numbers:
The LSE (London Stock Exchange) itself acknowledges that enough derivative bonds have already been sold into the financial economy of the world to dwarf the actual commercial activity on the ground tenfold.
Lenders allowed the Republic of Ireland to take on debt six times the size of its existing GDP.
So unbalanced was the UK economy towards financial services by 2008, the bank bailout there cost eight times more per citizen than it did in the US – a country whose economy is seven times that of Britain, with a per capital wealth 36% bigger than ours.
The IMF has the capitalisation to spend $900 billion bailing out sovereign States around the world. Bailing out just one sector of Ireland’s economy will eventually cost 10% of that figure. The IMF could not even have afforded to bail out Britain’s banks without help from others.


* The C5 was a three-wheeler nonsense invented by the one-time UK 1980’s whizz-kid Clive Sinclair. C5 became a watchword for bonkers failure for many years afterwards.