A Dogmatic Approach To Social Housing

For today's post, I'm again drawn to the Red Book and the 'problem' of social housing.

Remember, the game here is not to solve anyone's housing problem. It's to get the Labour Party elected to run the country. So it becomes necessary to explain the social housing problem in that light, rather than in a way that might elucidate its root causes and allow us to figure out a solution.  The facts should not be allowed to get in the way of a good story.

Why social housing? Because, as Dr Eoin Clarke explains, Labour's figures show it was deserted by a disproportionately large number of private renters, compared to property owners, in 2010 compared to 1997.  I can't vouch for any causal connection, but let's roll with it.

The primary challenge for the Labour Party is that this slide in support appears to have beeen a problem of its own making. Dr Clarke explains that in his view, "The Right to Buy scheme launched by Margaret Thatcher in 1981 was initially a good thing." And by the time she left office in 1990, the government was building social housing at about the same rate as it was being sold. That continued during the Major government, although both social housing sales and builds decreased steeply. 

Dr Clarke then asserts that the reason for the decline in sales and new builds of social housing was that Thatcher wouldn't let councils keep the sales proceeds - although that doesn't explain why the programme seemed to go okay for its first 9 years so I suspect something else was going on...

But never mind all that. Here's what happened next, according to Dr Clarke: from 1997 to 2010 there was virtually no social housing built at all, social housing sales boomed and the population grew by 4.41 million. House prices "rocketed". Young families had no option but to rent and "their rent payable was often extortionate... That," confirms Dr Clarke "is the legacy of New Labour's handling of housing."

Enough said, one would have thought. Yet against this background, Dr Clarke then asserts:

"Thus, it is fair to conclude that Margaret Thatcher's Right to Buy scheme was, on balance, a disaster for British housing."

"... we don't trust the Tories to build adequate stocks of social homes, because in their last 18 years of power they only built one for every four they sold."

Huh? Where does that come from?

Ironically, a little later, in her later essay on "Understanding the Psychology of the Working Class Right Wing", Rhiannon Lockley has this to say:

"...the key achievement of propaganda is to make the belief being transmitted internalised to the point where its origin is lost and it is accepted as natural and self-discovered by the individual...  The volume and diversity of negative messages about scapegoated groups in the right-wing media today does much to achieve this, and it is also supported by the factual style of reporting whch presents arguments as definite rather than exploratory."

All of which leaves the following questions: Is there a social housing problem? If so, what is it? How big is it? What are its root causes? What improvements could we make to address those causes? What controls could we put in place to show that it doesn't happen again?

But whatever you do, don't ask a dogmatist.

Don't Just Move Your Money: Spread It, Recycle It.

Great to see the MoveYourMoney campaign up and running - certainly a step up from the calls for futile mass withdrawals in 2010. But there are two significant gaps in the message.

Firstly: why should we move our money?

We don't need to 'save'. That's not really an activitiy in itself. And it's only one side of a much bigger story. Where do our deposits go?

As a society, our financial challenge is to get surplus cash from those who have it to creditworthy people and businesses who need it. Quickly and cheaply. At the rate that's right for both parties.

Our financial institutions don't enable this right now. They pay very little to interest to savers. They keep too much of the interest that borrowers pay. They use this 'margin' to cover losses from their own poor investments. 

So we've had to invent direct finance services that cut the cost of connecting savers and borrowers - meaning higher returns on savings and cheaper borrowing costs. As each borrower repays, you can re-lend your money to others. Think of it as financial recycling. The banks still play a role - the operators of these new services recycle the money through segregated business bank accounts - but they don't get to use your money the same way as if you opened your own personal savings account.

But this brings us to the second gap in the MoveYourMoney campaign. We shouldn't move our money to just one place. We need to put our eggs in lots of baskets -  we need to diversify more. There are many other baskets for your eggs than those listed.

Yet we are incentivised by government not to diversify. Most of us only get basic tax breaks (e.g. ISAs) for putting our small amounts of savings in the bank or building society (or in regulated stocks and shares).  This not only discourages us from using more efficient services, but also protects banks and building societies (and managed investment funds) from competition. Worse, it encourages us to put all our eggs in a few baskets, so our holdings of surplus funds are not diversified. We're told this is 'safe' to do because at least some of our money is protected by the Financial Services Compensation Scheme. But such insurance does not ultimately make these baskets 'safe' for all of us as a society. It makes these baskets expensive - because as consumers we all pay for the compensation scheme in the end. And we pay again as taxpayers when the highly concentrated risks in the financial system bring it grinding to a halt.

MoveYourMoney may not yet explain the need to get your money quickly and cheaply to creditworthy people and businesses who need funding. Nor adequately explain the need to diversify. But the government is now aware that the regulations and incentives are wrong. And organisations like MoveYourMoney should be helping us to keep the pressure on government so that these problems are actually addressed.

Further, Faster, Narrower, More Targeted

Raising the personal tax allowance is a great idea. Too many low income earners are paying tax at the same time as receiving benefits - needlessly pouring tax money into the leaky Treasury bucket. But as ever, how to fund the tax break is the £64bn question.

This change brings the opporuntity to begin trimming many public spending programmes to make them more narrowly targeted. As a result, taxpayers will begin to trust the government to cut taxes rather than merely cut public spending.

Currently, there are many cases where the link between the burden of a tax and how the money is spent is unnecessarily indirect. This is no accident. As explained previously by Kristian Niemietz, the proponents of 'tax and spend' deliberately design policy and related spending programmes to favour a proportion of undeserving recipients without appearing to tax them directly. These are usually called 'universal' or 'comprehensive' programmes. This political strategy not only preys on greed amongst the 'sharp-elbowed' middle class, so that they'll welcome the policy behind the spending; but it also preys on their fear that abandoning the policy and cutting spending will not translate into lower middle class taxes. 

On that basis, the government only ever spends more, and either borrows or raises taxes to do so - a vicious circle we need to break.

Eurocratic Mathematics

Click here for the full-screen version

So, they've bailed out Greece again. This time investors took shorter 'haircuts' and the European Central Bank will pass its profits on Greek bonds (yeah, right) to national central banks so that it "may be allocated by Member States to further improving the sustainability of Greece’s public debt." If all goes really well (uhuh), this €130 bn 'lifeline' should mean that Greece will still owe the world 120% of its GDP in 8 years time.

To ensure Greece takes the requisite fiscal pain, it is to be permanently monitored  - the sovereign equivalent of house arrest. But the Greeks won't mind the ankle bracelet, as they've had one before. Five years after the 1893 default:

"foreign pressure led Greece to accept the creation of the International Committee for Greek Debt Management. This committee monitored the country's economic policy as well as the tax collection and management systems of Greece."

In fact, Greece has been in default for about half the time since achieving independence from the Ottomans. It's the country's part-time job. And I'm sure the latest reprieve won't rid Greece of its feeble system of political patronage, either. History is doomed to repeat.

So of course the numbers are all rubbish. This is Eurocratic mathematics, the bunting on the facade of a single Europe.

I'm sure we'll all get used to it - unless, of course, they cut Greece loose...

Image from Demonocracy, hat-tip, ZeroHedge.

Gasp! UK Bank Enables Mobile Money Transfers!

The comments under the Guardian's piece on Barclay's mobile money transfer app tell you everything you need to know about the pace of innovation amongst UK retail banks ;-)

Image from JISC infoNET.

Government Is Right To Sublet Its Empty Offices

I was concerned to see Private Eye denouncing government plans to return empty government office space to the market, via sublets if necessary (Eye 1307, HP Sauce). That suggests a view that the government should simply keep paying the rent on its empty office space, creating a false property market, rather than reducing its rental exposure and using the savings to, say, reduce public borrowing.

The Eye says landlords are yet to agree to sublets, and quotes a letting consultant as warning that "throwing even cheaper subsidised office space into the market will only serve to make life even more difficult for existing landlords struggling to find tenants." Others apparently complain that "this latest wheeze will also threaten the viability of existing business incubator schemes, such as the Leeds Met University-backed QU2...". 

Poor old landlords! It's almost as if they're in the property business.

Like any other tenant, if the government did not try to sub-lease empty rental property, it would be missing the chance to mitigate its loss on the rental and distorting the property market. A free market should see rental prices for empty space falling to the point that someone takes the empty space.

I get the point that the government shouldn't subsidise private business tenants. So the rental on the sublets should cetainly be at commercial rates. But if that commercial sublet rental is lower than the headline rent due to poor market conditions, you can't really call the difference a subsidy to the sub-lessee. It's a loss (but not as big a loss as there would be if the government didn't bother to sublet at all). 

Furthermore, if subletting vacant space undercuts a university incubator scheme that is funded with public money, then the benefit of subletting is not only that it covers some of the Treasury's rental exposure, but also that it saves public money that would otherwise have been spent by the university. In turn, the university should get rid of its empty space. But even if the university scheme were privately funded, it should have to compete with cheaper commercial rents on sublets across town. That's a feature of a free market.

Of course landlords - and lettings agents - are going to be upset by the idea of sub-lets at lower rentals. But that's a feature of a falling rental market. Why wouldn't they try to resist such negotiations? So long as they're being paid the rent by one tenant, they may as well leave the building empty and try to rent other vacant space. That doesn't mean the government has to play along, and ultimately the landlords know that empty rented space amounts to false demand. Whether they persist in keeping the building empty in the hope that the market recovers by the end of the lease term is up to them. Again, it's a free market.

But the wider reality is that if landlords don't either accept lower rents or allow tenants to cover their rental obligations on empty space, then private tenants will be losing money and have to charge customers more - or face going out of business. For public sector tenants it would mean paying landlords instead of repaying government debt.

I know what I'd prefer. Let the landlords take the pain - it's their business.

It's A Dog(matist)'s Life

The great challenge for political parties in a democracy is that they exist primarily to solve their own problem: how to get a majority of their candidates elected to govern the country. Solving citizens' problems is not their fundamental aim. In fact, the problem of how to get elected is so remote from the day-to-day problems encountered by the country's citizens as to render the internal activities of political parties more or less irrelevant to how our problems actually get solved. The world is too complex for the answers to lie in some political party manifesto, far removed from the activities of market participants and even civil servants. So political parties have to persuade us of their distinctiveness and their relevance. They have to convince us that they could solve our problems, if we would only vote them into power and leave them there. Trends reveal that this process, and party politics itself, is doomed.

Declining participation rates in general elections demonstrate that we don't really value the outcome of our formal electoral processes. And the relentless pursuit of MPs over their expenses demonstrated that, in the UK at least, we don't think much of our formal political representatives either. Instead, we're turning to more direct means of shaping our society bottom-up, through informal facilitators like 38 Degrees, well-organised charities or other single interest groups. We want our politics unbundled, like travel or music. Eurocrats in Brussels also admit to a rise in 'informal institutions' within the fiendishly complex framework of the European Union, and European academics point to 'networks' as the source of "informal processes of economic regulation and institutional change". This cuts both ways. National governments are relying on global businesses to act as 'private sheriffs' (e.g. to enforce their user terms to shut down Wikileaks) and big businesses lobby governments to control our behaviour when it suits them.

So party-political dogma provides a particularly poor lens through which to view this world and solve its problems. It collides with the trend towards each of us having our own personal political manifesto - charting our own, pragmatic path.

The challenge for political parties to remain relevant is particularly evident from The Red Book, a series of essays from Labour Left, the 'home of ethical socialism' within the UK Labour Party. While I don't care a fig for the Labour Party (or the Tories or Lib Dems, for that matter), I started reading The Red Book to see how an ousted political party might try to improve its relevance in 2012.

What struck me in the very first essay, introducing ethical socialism, is that The Red Book takes a top-down approach, rather than bottom-up. First, the ethical perspective is contrasted with that of other segments of the Labour Party, referred to as "Blue Labour", "Purple" and "the Blairites". Then you and me are discussed as if we're in another room, using the terms "middle-income (A/B) voters" and "poorer voters (C2)". Then come the references to the "political establishment and the wider public" and the claim that "politics is about shaping public opinion, not bowing slavishly to it" (my italics). Finally, comes the admission that "a key Labour NEC member" has derided The Red Book and/or Labour Left "as a 'Peoples' Front of Judea' no less" (the irony presumably lost on the said NEC member):

The introduction continues by asking "how to live the socialist life?" and I've highlighted the inconsistencies in bold: 

"At the outset, it means committing ourselves to living in community with all who share our social space. This means, for the better off socialists, refusing the option of buying out of that society alongside developing policies that challenge the choices of those who do... The vision of a harmonious society lies at the heart of a socialist community: and a socialist community cannot exist where we relate only to those whose experiences mirror our own.

It follows from this that we must treat our fellow citizens with decency and respect.

[and later]

"What is desperately needed is an holistic vision of society where the contribution of all its parts is recognised and treated with dignity and respect."

Surely the requirements to treat our fellow citizens with decency and respect, and to avoid relating only to those whose experiences mirror our own - the 'holistic vision' - should mean allowing rather than refusing others the option to buy out of "our social space"?

At any rate, the socialist path immediately loses its way in a series of essays on the difficult subject of NHS reform. The first (by Grimes) denies the NHS is inefficient, claiming it leads the world (contradicted by research on various measures IEA, p. 82), dismisses the idea that people must take more responsibility for their own health, and challenges the application of market forces - we simply need to spend more money. The second essay (by Taylor-Gooby) concedes inefficiency, accepts some of the recently announced Coalition reforms (claiming they were Labour's anyway), requires people to be encouraged to live more healthily and points to local social health enterprises as a means of increasing the efficient allocation of resources. Finally, Grahame Morris MP fears that the "commercialisation" of public services will open the ideological floodgates, but then reminds his by now thoroughly confused colleagues of the need to restore confidence in public services and the public sector workforce:

"Slow moving monolithic bureaucracies at local and national level need to become more responsive and we must recognise that the move towards the private sector was in part inspired by the refusal of some services to adapt and change. Trade unions and staff associations must become part of the solution to improving services...".

As a pragmatist I would agree with Grahame, but doubt the ability of the entrenched public sector workforce to change from within. The idea of exposing the NHS to competition - even from social enterprise - would seem likely to help ensure change is achieved.

It's just a pity that The Red Book is focused more on pointlessly proselytizing about 'living the socialist life' than drawing helpful conclusions based on hard facts. Presumably it has left the faithful wandering confused among the wards of some figurative NHS hospital rather than focused on improving healthcare.

And therein lies the real message in The Red Book: living a dogmatic life is a terrible waste of time and energy that would be better spent helping to clearly identify problems and figure out how to solve them. 

Facilitators and Institutions Defined

The distinction between 'facilitators' and 'institutions' is a theme that has emerged quite strongly in this blog and is discussed in Chapter 2 of Lipstick On a Pig. In essence, I've defined "facilitators" as organisations that exist to solve their customers' problems; and "institutions" as organisations that exist to solve their own problems at their customers' expense.

To be more specific, I've extracted the following characteristics that I believe mark an organisation as being one or the other. Broadly, these characteristics group into themes of alignment, openness, adaptability, transparency and responsibility.

So, a 'facilitator' is organised to solve its customers’ problems, operates openly, adapts well to changing circumstances, is committed to transparency and takes responsibility for the impact of its activities on the wider community and society.

I update this post from time to time and am interested in any comments you may have.

Facilitators:

 Alignment

• exist to solve problems that their customers encounter day-to-day as part of wider end-to-end activities (i.e. customers don't 'pay' or 'bank', they make a payment as a single step in a much longer purchase process);

• don't presume to 'own' the relationship with people who use their products, and see customers as the controllers of that relationship;

• accurately define real problems, assess their real scale, identify root causes and implement proportionate, efficient solutions;

• view the world through the eyes and experiences of people who use their products;

Openness

• are prepared to work with complimentary businesses to support their users' end-to-end activities (including linking to material produced by others);

• seek feedback, welcome input and criticism;

• interact well with users in open forums;

• are 'free-rider tolerant';

Adaptability

• are highly adaptable and responsive to criticism; 

• allow ideas to develop from staff and users bottom-up, generating passion and connection amongst them;

• see uniqueness, change and adaptability as a source of competitive advantage;

Transparency

• work to simplify their products and users' experience;

• their terms and communications are clear, fair and not misleading;

Responsibility

• seek to make the world a better place in which to live, addressing the impact of their activities on the wider world.

Institutions:

Alignment

• Exist to solve their own problems at the expense of 'their customers';

• View the world through the lens of their own products (whether goods or services), rather than the activities in which users are engaged when acquiring or using those products;

• Regard themselves as controlling the relationship with users. 

 Openness

• Resist criticism and change – believing that their own processes, judgement and publicity should prevail;

• Impose their own views on staff and 'their' customers, top-down;

• Interact poorly with users (if at all) in open forums, experiencing 'vicious cycles' of adverse publicity; 

•  Are 'free-rider resistant';

• Mandate the use of their own add-on services, even where these are inferior those available from third parties; 

 Adaptability

• See running with the herd, or 'fast-following' as a source of competitive advantage;

• Demand that 'their' customers must become more capable if their products or experiences are to improve; 

Transparency

• Deliberately adopt complex pricing, conditions and 'pressure' techniques in their sales and marketing activities;

• Rely on cross-subsidies to distort the attractiveness of new products;

• Their terms and communications tend to be unduly complex and legalistic;

Responsibility

• Avoid addressing the impact of their activities on the wider world.

Why Should Londoners Help Cut Regional Public Spending?

I confess that I spent a long time ignoring politics and politicians. I didn't even vote, to avoid encouraging them. I figured if I kept perfectly still they'd lose interest and move away. And for a while it worked - John Major's heroically quiet government nearly brought spending down to a reasonable figure of 35% of the UK's output. At that sort of level, the tax burden can be reduced, there's more money for private enterprise, output increases, the government gets more tax revenue at the same rate - everyone wins. Or at least the Australians and the Swiss do (source: OECD, hat tip IEA, p. 47).

But the UK figures turned truly nasty during the noughties, and that certainly grabbed my attention. By 2009, Gordo and his cronies were spending an amount equal to about 50% the UK's output.  That left the UK in a terrible hole, and it's difficult to believe some hail Gordo as an economic saviour. Contrary to his own claim, he didn't put an 'end to boom and bust' - Mr Bust is alive and well and living high on his overdraft. And if you believe Osborne's plans for the greatest spending reduction since the invention of the stylus, he'll only cut national spending to 40% of GDP by 2015. 

But, for Londoners at least, the picture is a lot less depressing when you break down public spending by UK region. The rate of public spending has remained under 40% by regional GDP for London and the South East, while the rest of the country (bar the East at 45%) is way north, so to speak. In fact, public spending in the North-East peaks at a whacking 70% of regional GDP. England is cruising at 50%, while Scotland is at 60% and Wales and Northern Ireland are dragging around a millstone of government expenditure equal to 80% of their GDP  (source: HM Treasury, hat tip IEA, p. 57). 

As mentioned previously, the government is crowding out private businesses in the regions, and strangling their ability to compete, nationally as well as globally. Manufacturing seems to have been hit hardest, but even a local services business will have to compete with the public sector for administrative staff. And if those people don't want to work for the public sector, they may as well head to... London and the South East.

Funny that. And even funnier that Labour attacked Tory plans to reduce regional public spending. Far from risking a regional recession, the policy change was an opportunity for the regions to rid themselves of the cold dead hand of government.

Of course, bound up in this are national schemes that put public funds in the hands of middle-class people who shouldn't have been taxed to pay for them in the first place. You also see regional MPs resisting cuts to those programmes, preying on the middle class fear that they won't lead to tax cuts.

But people seem to be missing the competitive element to all this. Not only do London and the South East benefit from the flow of dissatisfied regional private sector workers and businesses. But there must also be a risk that London-based policy-makers won't persist in trying to administer medicine the regions don't want. I mean, it's hard to get the attention of Ministers and senior officials at the best of times. But when they're under the sort of pressure they are today, well, maybe they just won't get round to doing the regions a favour...

Trading On Greed and Fear In The Middle-Class

The ebbing financial tide is leaving many weird schemes high and dry - Madoff's ponzi, Icelandic savings accounts, Irish real estate, Greece, Californian municipalities, Royal Bank of Scotland... So we should expect to see at least a little of the same weirdness among the UK public accounts. 

Actually there's quite a lot, as you've probably guessed from the title of "Sharper Axes, Lower Taxes" and its cover design. And you can rely on the Institute of Economic Affairs to point it out in this fashion. The IEA is a research and educational charity whose "mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markts in solving economic and social problems." Street: "We give it to ya raw." Don't look for a juicy political manifesto from these guys. The Tea Party they are not. Look for pragmatic next steps and the odd yelp. The choice is yours to make.

But the thought that struck me most often while reading this book was not how the carpet at HM Treasury will cope with all the blood. It's that the font of all weirdness in the public accounts is the lethal cocktail of fear and greed whipped up for the middle class. 

This is perhaps best explained by Kristian Niemietz in the introduction to his chapter on welfare spending. Basically, a spending decision is more likely to be driven by the range of people who appear to benefit than the reality of who pays. This seems merely obvious at first, though not planned. But this is textbook stuff for politicians and public officials. First, they create a 'fiscal illusion' by simultaneously highlighting the benefits of a spending programme to the recipients - including as many (undeserving and greedy) middle class people as possible - and shrouding the costs in mystic runes of Whitehall jargon and indirect taxes (but Whitehall can't even count, so it's likely to get this wrong). This is why politicians are accused of having no apparent means of funding their promises. And it's why we have VAT, and taxes on alcohol, tobacco, gambling and driving around, and employer contributions and public sector borrowing. These costs are designed to be forgotten. Then, because "there is no direct link between any particular benefit and any particular tax", the middle class (most voters) will not only welcome the policy behind the spending, but later resist the abolition of the unduly expensive benefit, fearing that it will not translate into lower middle class taxes. "The benefit is certain; the tax reduction that could correspond with its abolution is not."

To emphasis the fact that this is a genuine play on greed and fear in the middle class and not some kind of whacky conspiracy theory, Kristian points out that those who advocate "a drastic expansion of the British welfare state" call this effect "middle-class buy-in":

"while narrowly targeted policies will fail to draw on the strength of middle-class political pressure to defend welfare, policies with wider coverage actively recruit the sharp elbows of the middle class." The Solidarity Society: why we can afford to end poverty, and how to do it with public support. Fabian Society, 2009

This is why Richard Murphy recommends universal social benefits and comprehensive pensions for all, and national pay deals for local workers. The comfy middle class soak up the benefit but don't see the cost, leaving those on lower incomes to bear the reality of stagnating growth, fewer jobs and the lost chance to use their lower local living costs to compete in, say, manufacturing.

These tactics are a particularly insidious form of disease the only cure for which is the rapidly growing and seemingly unquenchable thirst for sunlight that is the subect of this blog. There is no substitute for obtaining people's informed consent to public expenditure. So it was certainly worth wading through "Sharper Axes, Lower Taxes" and I'll be featuring more from it. That's not to say I agree with every suggested chop, but I'll be doing my best to hunt out the fiscal illusions and suggest the pragmatic choice.

Role of The Entrepreneur

I recently made the point that, instead of looking to the state for our personal wellbeing, the buck stops with each of us personally - whether as voters, taxpayers or whatever - to ensure the wellbeing of others. Some basic, inevitable economic constraints mean the state simply can't do that job for us on any sustainable basis. This is also the difference between an entitlement culture in which we behave as passive victims of our institutions, and an empowerment culture, in which we seize control of those relationships. Ultimately, the state can only serve as a facilitator, enabling each of us to meet our fundamental personal obligation through private enterprise.

But how can we meet those obligations? Which business activities will be the winners of tomorrow? And how can the state help?

Peter Urwin's "Self-employment, Small Firms and Enterprise" very helpfully explains the role of self-employment, with and without employees, as our primary source of "genuine entrepreneurial insight". Big corporations are of little use here. Businesses don't start big. Entrepreneurs start out self-employed, either with or without staff. Yet, picking winning business ideas is impossible: while "entrepreneurship is crucial for economic growth... we have no idea where it will come from - not even in the most general terms." As a result, the best that we - and government - can do is to ensure "a climate in which enterpreneurship can thrive".

Peter lays out some interesting stat's for the UK:

• over half of all new businesses won't exist in 5 years time - yet this is no bad thing: serial entrepreneurship seems to have a greater influence on success than academic qualifications;

• you're more likely to be self-employed if you have dependents under the age of 16;

• about 20% of males who are active in the labour market are self-employed (42% of those aged 65+);

• there is no obvious impediment to being self-employed, and people who struggle for various reasons to fit the big firm mould tend to be self-employed or work for small firms;

• small firms are easy to start, but face impediments to growth through tax and regulation, such as taking on employees - in the UK, only 6% of new firms create over half of all new jobs.

• in particular, "the costs of compliance... are regressive, as there are economies of scale in tax compliance... product market regulation and employment protection legislation". These costs have remained constant despite efforts to eliminate red tape. However, these costs don't prevent people starting up or remaining self-employed with no employees, they inhibit expansion.

It's suggested that there's a distinction between being self-employed for tax planning purposes, and being self-employed for 'genuine' enterpreneurial reason. But if it's impossible to pick who among the self-employed will be successful, then I don't see how you can reliably make this distinction, except with hindsight. Step one to starting your own business is to become self-employed. Perhaps you take that initial step for cynical tax planning reasons, or maybe with a view to figuring out what sort of business you might start. In either case a bigger business could emerge, with lots of employees. Life's what happens to you while you're making plans. The motives are pretty meaningless.

However, Peter rightly points out that there's little room for entrepreneurial activity in large firms - even if self-employed people with the "skills of entrepreneurship" are involved. Those skills essentially being to provide "the central concept around which the firm is initially constituted" and "to unearth the unknown unknowns." I've worked in two start-ups, both of which are still running after 10 and 7 years respectively, and various large firms. Once a bunch of people unite around any business plan it becomes tough to change. Add more years and more people and the job gets harder.

So it's laughable to see big corporate executives and entrepreneurs lumped into the same category, as Luke Johnson recently explained, though the CEOs still at the helm of the companies they created are in a category of their own. This latter group also prove the case for a lack of demand for genuine entrepreneurial skill in big corporations. It's the original vision of the founder that rules, and competing strategic visions aren't welcome. In fact, it's not uncommon for a business to oust its founder only to welcome him back to rescue the ship from doom (e.g. Steve Jobs).

Ultimately, Peter is to be applauded for essentially recommending that small firms should be allowed to retain all their staff as self-employed individuals. This would allow for the rapid expansion of a business around an entrepreneurial concept as it emerges, rather than straining its resources and strangling it in red tape before it has a chance to discover whether the concept will 'fly'. Of course, firms could still choose to offer employment to staff where that is necessary in order to compete in the labour market. But given the healthy, inevitable failure of most small firms within 5 years, and the inability to predict the winners, it seems pointless to require all of them to grind through the cost and admin involved in creating and maintaining the employment relationship.

When Will Control Truly Shift To The Consumer?

For those engaged in the process of empowering consumers, 2012 is already a fascinating year. So it was timely that a bunch of us met at Ctrl Shift's "Explorer's Club" to try to map the timeline for when 'customer relationship management' truly inverts and firms finally acknowledge their customers control them. 

The output of the session is being converted into an 'infographic' that will be available as a reference soon. In the meantime, here's an excellent drawing that Joel Cooper produced during the session to reflect the various themes: