Watching North Africa shake itself from dictatorship has been nothing short of inspiring. The inerta of the public will was enough to convince the Egyptian Army to get behind a new leadership model, just as a similar exercise in tiny Tunisia beheaded a rapacious regime. In Egypt, the Army is supervising an interim government. Protests linger in both countries. But after the hyperbole quiets down, what will unfold in Cairo?

Within the investment community, there are two dominant schools of thought. The first has the Army upholding a modified constitution, and acting as a safeguard to the new Republic, which leads to free elections, an immediate upswing in growth, followed by  a kind of renaissance for Egyptians everywhere. This view, with its unlikely casting of Egyptian generals as Jedi Knights, is seen as blissfully naive by more pessimistic observers. They note both that the interim government isn’t wildly different from the previous one, and that less savoury players in Egyptian politics have not yet spoken. To the pessimist observer, it is inevitable that the Ikhwan (known in the West as the Muslim Brotherhood) will poll well in the election, and once in power will cease to relinquish it – a time immemorial habit of Egyptian leaders. Since the outside world (and their investors) tend to like beer , shaving and culinary diversity, the theory goes, it is only a matter of time before Egypt sees more, potentially violent upheaval.

Iran is nobody’s model

The pessimist’s view is not without merit. Remove the previous policing of Egyptian politics and you will end up with a less pasteurised debate, in which a broader – and presumed more radical – series of voices will gain bandwidth. The fact that no polarising figure has yet emerged as a credible presidential candidate is less meaningful, since the regime did not tolerate rivals to the Great Hosny before the latter’s ignominy. Several observers have posited the view that Egypt will have an “Iran moment” when the popular movement will collapse on intellectual exhaustion and open the door for a radical religionist voice. These voices tend to be remote to the national experience: No Khomeini will sweep into the country because there is no Egyptian equivalent.The Egyptian revolution was not “about” religion; it was mostly about jobs and a narrow wealth distribution. When the religious began to protest, shouting “God is Great!” among other things, the broader community of protesters responded with “Muslim, Christian, We’re all Egyptian”. This is hardly the sort of thing you would expect to get from a pack of fanatics bent on banning shaving. What the local populace want is equal and fair opportunity, which means the ability to raise your kids sensibly, hoping that their lives are better than your own. This is a universal human value, which the previous leadership failed to sufficiently deliver. Before the revolution, Egyptian elites used to regularly complain about the country’s poverty problem, and the government’s complete failure to do anything meaningful about it.

The Egyptian revolution was more about a desire to participate in benefits of the global economy than it was about a lurch into political isolation. Egyptians are familiar with the Iranian model, and don’t see much appeal in living in a country with high inflation and low international popularity. From their perspective, they already enjoy all of these problems at home; and minus oil revenues, there hasn’t been enough cash to offset the lack of more diverse trade. That means fewer jobs and more poverty. Mainstream Egyptians are frustrated with the difficulties of finding work, and are annoyed that the best jobs are often outside the country. This is a material issue: Foreign remittances are one of the country’s largest FX generators.

At its heart, this is what makes the Egyptian situation rich with opportunity. Everybody knows that Egypt can be as important globally as Malaysia; after all, its population demographics are not wildly different. High concentrations of young people keen to work and get on where their lives are much more interesting to investors than the rarer, more flaccid European offering. And this is before Egypt’s strategic position is taken into consideration.

…But old habits die hard

At a meeting of business leaders in Cairo last night, attended by David Cameron, the Egyptian investment minister spoke about her desire to reduce red tape and create a more welcoming market for foreign direct investment. The local heads nodded and the hands clapped; the international media happily wrote down a few useful soundbites. But deep down, the locals know that every Investment Minister in the last 30 years has called for this to happen. They also know that no progress has been made because the red tape is deliberately protectionist – of the Army’s economic interests, not the nation’s. This is why the populace rallied to demand a better, more responsive leadership, and it is crucially why the Army backed the protesters: because they know that with a new leadership, their primary benefactor will continue to make the payments. For the avoidance of doubt, that primary benefactor is the United States.

Another area of old school Egyptian reticence is the desire to keep the local stockmarket closed. A variety of arguments are used to defend the near month long shuttering of the exchange. Initially, the central bank closed the market due to the closure of the banking system, which in turn was the result of the regime trying to hammer down the economy as a last ploy at remaining in power. But now that the banks have largely re opened – minus a small hangover – the excuses to keep the market shut get thinner and thinner. The head of the Egyptian Financial Services Authority (EFSA), Dr Ziad Bahaa, recently cancelled an investor call at short notice – he claimed to be meeting the Prime Minister. Harry sees no reason to doubt his intentions, but notes that Dr Ziad just closed his market for another week. This has lead to sharp criticism internally.

The regulator invariably responds to such criticism by suggesting that the exchange’s infrastructure might fail, leading to chaos locally. Harry finds this difficult to believe; instead, evidence suggests that the market’s stewards are worried about what might happen were they to turn the machines back on. Sources close to the CMA reported rumors of trade cancellation, which brought terror to the already glum Egyptian brokerage community. To market veterans, this feels more ominous than it perhaps will prove to be. But the equity market remains closed, brokers remain disconsolate and investors frustrated.

This is a tragedy because it is under selling the country, not least by convincing large international investors to keep clear. Egyptian risk has rarely been as appealing, and yet the cronies left at the helm of the local Exchange are keeping it closed. Like Panodora, you cannot retrieve what you have released; and like friendship, you make a stock market grow by staying open in the bad times. Someone clearly isn’t getting the memo.

Everywhere else in Egyptian finance is suggesting that opening the market wouldn’t be that bad. The currency has been more stable than people might have projected before the revolution, hovering around LE 6 to the dollar. Forex reserves dipped by around $1 billion, leaving the country with around $35 billion left – hardly a reason to panic. Extra cash provided to local banks- in some cases emergency liquidity borrowed from overseas – sat mostly unused in Cairo’s bank vaults as the forecast run on the Pound failed to materialise. In New York, the only Egyptian ETF is trading at a 15% premium to the underlying local market. Enterprising hedgies looking to pay the resulting convergence trade (by shorting the ETF) have been frustrated by the 40% cost of borrowing the fund – which suggests that everyone already invested is buckled in for the launch sequence when the EFSA finally clears the market for takeoff.

Today’s Dog Is Tomorrow’s Turkey

Emerging market equity investors see the situation as an opportunity because they are not heavily invested in the country. The benchmark index, which reflects investor interest, has the company at a paltry 0.5% weighting – making Egypt bigger than Nigeria but far less interesting than Turkey and Poland. Turkey, also a moderate Islamic country, has around 4x the per capita GDP (and far more market capitalisation) than Egypt, despite having many of the same issues as Egypt. This suggests that more credible policy formation will result in a more attractive destination for capital – and job growth will surely follow. Since jobs are the best tools to fight poverty and penury, (and thus terror), there isn’t a policy maker on earth not pulling for this outcome.

This is why Harry believes that the outcome of the Egyptian revolution at least initially looks like the Turkish model. The Army will be a political player as the new system beds down, while in the place of a monolithic single party, we will now have a wide variety of smaller parties angling for seats and influence. Like Turkey, we can expect coalition governments, and also like Turkey, we can expect fiscal indiscipline as populist governments attempt to transition from the old system to the new. Not everybody benefits from democracy, particularly those that were overly rewarded in the previous system – typically those promoted for loyalty over ability.

Egypt’s position astride the canal will make it a logical destination for re imports, and acting as a logistics center for access into both North Africa and European markets. The banking system will run rampant, again as in Turkey, as ordinary Egyptians seek to upgrade their lives with improved housing and better cars. Ultimately, what equity investors know (again, because of the Asian example) is that political change often reaps rewards for the local population; and that means better, more interesting businesses and institutions to participate in.

It is difficult to not be bullish on the outlook, even when that view is tempered by the understanding that delivering such a result will take time. The region is waking up, lead by the country that will show the way to a better distributed wealthy region.

On the 6th of May, David Cameron’s Conservative party polled 36% of the popular vote to secure 306 seats and became the largest party in Parliament, but did not crush the Labour Party, who finished with 258 seats. The Liberal Democrats retained 57 seats despite winning 23% of the popular vote. The result was a pyrrhic win for the Liberals, who saw their leader launched into the Deputy Premiership, and his deputy named to the relatively minor post of business secretary. What is obvious is that the Liberals negotiated poorly: a coalition between Labour and the Liberals seemed more credible to their electorate than an alliance with the Conservatives. The resulting lack of LibDems in senior government has contributed to a trampling of LibDem flagship issues, which is now undermining the party’s popular support. While this plays into Labour’s hands, they have chosen to focus instead on attacking Conservative headline policy while limiting attacks on Liberals to more withering individual criticism. Why?

For two reasons: first, the Liberals have entered a position from which they can exit only by dissolution or defection, and thus can only play to Labour long term advantage, and second, Labour needs time to allow the Coalition time to execute changes to social welfare. Labour knows it cannot make these changes, but does not contest that they are needed. Labour’s complicity is evident in the weak opposition offered currently.

Labour’s strategy is clear. The party intends to be in a position to force a coalition crises within two years. To do this, it amplifies its issues with Conservative policies, thus forcing toxic headlines onto the weaker coalition member by association. This erodes the Liberal power base, a move which might result  in lethal obscurity for the Yellows. Grinding the Liberals could trigger an insurrection in the coalition – an event which would swiftly return Labour to power. The unlikely way out of the trap would be for the Conservatives to acquiesce to proportional voting, a key Liberal issue which is toxic to Tories.

This situation suits a Labour party under new management, because grinding takes time to mature, thereby granting space for the new party leadership to form populist policy. Harry notes that the leader of the opposition was recently away from work for paternity leave; the papers barely shrugged.  The implicit prejudice stands up to analysis: Labour emerges as the more likely alternative for disenchanted Liberal voters than a Conservative party focused on dismantling 20 years of Labour largesse.

And the strategy is working. The Liberals have fallen from a 27% share of voter intention on the 5th of May (they polled lower the next day) to a current 14% according to MORI, a polling agency. The Liberals’ votes have been polarized; Labour has moved from 29% to 39%, eclipsing the Conservatives’ 36%: together the big two parties control 75% of the vote, up from 65% at the last election.

To actually win back control in the current absence of policy, Labour either needs the Conservatives to push the Liberals into outright rebellion (a medium probability), or for the coalition to make a major policy error. Conveniently, there are a number of potential errors in the pipe, ranging from such evocative issues as University fees (students have every incentive to protest), to over stretching the military (Harry wonders if the Conservatives actually read history? One does not need to be an Admiral to appreciate the impotence of empty carriers). With protests proliferating, and the mob sensing that it can influence policy, the room for error can only increase.

… But Labour needs fresh ideas to credibly win back power

Opposition parties win voters by identifying areas of weak administration, and then showering them in a haemorrhage of publisher’s ink. Opposition parties seek to win over tabloid proprietors with shameless packages of tax breaks in exchange for rivers of ink to flow only through the government’s benches. Since the current government is dealing harsh medicine, the populist urge of the papers will doubtless ensure that the ink will spill. But Labour needs to find a credible alternative to the previous regime’ toxicity and win over the bondholders. More scary for Labour is the apparent popularity of Conservative welfare reform, which is behind the party’s electoral share gain. To some extent, Miliband needs Cameron’s action to create his own policy response, ideas of which are doubtless scattered across his dining room table on little pieces of paper.

But the real issue isn’t a lack of policy; it’s the prevalence of poverty.

Labour’s strategists know that 20 years of Blair and Brown effectively did nothing for the really big story in Modern Britain: the hollowing out of the economy and the increasing reliance on financial services as a growth driver. A major piece of Miliband policy should be aimed at invigorating the industrial heartland of the country. The deep problem that Miliband has to square is that Labour’s historic policies have made manufacturing uncompetitive, thereby contributing to a population that the Office of National Statistics rather bloodlessly calls in ‘inactive’ – all 9.2 million of them. That’s not easy when your core policies misprice unskilled labor. The direct impact of benefit in all its forms – housing benefit, income support benefit, and all the others – is that it creates a powerful incentive to do nothing when the average wage in the country is £25,500. This is just another reason why a smart Labour party is happy to let the coalition carry on – secretly it knows it cannot reduce benefits, much as it would probably like to do so; the Conservative campaign plays like music to Labour’s spinners.

A further issue faced by the Left is the very real probability of over taxation. Brits pay both high upstream and downstream taxes, the combined burden of which saps the will to live. The resulting escape – into drink and cigarettes – is also taxed aggressively. This shafts the poor hard, since after tax income is typically measured against income tax, not against total taxation. Saving on a middle income in England is practically impossible, since the government consumes the margin. Labour loves this because it creates a virtuous electoral circle: people keep voting for subsidy, and that keeps the towns red. The only solution to this mess – cut into subsidy and lower taxation – works only for an exhausted Middle England, but not for a Labour party which struggles to contemplate cutting expenditure.

At least one answer, for both Mr Cameron and Mr Miliband, is to introduce enterprise outside of London. The Brown government tried this by proposing to move the BBC to Manchester, conveniently forgetting that the media reports, rather than creates, news. London’s relative success has been bought at the expense of the country’s other principal cities – many of which have lagged the capital in extremis over the last twenty years (To show but one example: Newcastle is home to 260,000 people, making it around half the size of Portland, Maine; in 1901, Newcastle’s population of 215,500 equalled Buckinghamshire; today it is barely a third of that county). Brits need incentives to go to work, not stay at home, and more taxation just keeps them shirking, not working.

Mr Miliband and others in the Labour leadership know that their party has failed the poor – put simply, after 20 years of comrades at the helm,  the poor are still poor. That means the previous experiment didn’t work, and Labour now needs to concoct a new experiment to succeed. To be successful, the party must find ways of making poor people sustainably rich. That means getting people off welfare, which Labour is incapable of doing. To address this shortcoming, the Party first needs to allow the coalition time to reduce subsidies to get people into private sector work. The risk is that a more mobile population might rally, and pass Labour by; but this is the United Kingdom, where change is slow and Liberal meltdown in the resulting furore is more probable.

Beware the Kingmaker

Confident politicians lay long term plans and attempt to carry out heroic, yet generally futile, renovations to both government and society as a whole. Scared ones attempt to up their poll results by spinning bored tabloid editors, so they can go on to implement heroic, yet futile, initiatives. As grassroots pressure on his MPs escalates, Nick Clegg will be forced to consider his political destiny: stay with the coalition too long, and he could risk being seen as the Liberal’s Icarus; cut too early, and he could doom the party in the next general election. Clegg’s immediate priority is to soften Conservative ideology while protecting Liberal issues, but the likelihood of this bulwark holding is poor. News that the Liberals intend to contest every by election – therefore running against their own coalition partners in some cases – does not surprise in the slightest. Clegg and the Liberals seem to forget so easily that they are the kingmakers in the coalition, and could so easily throw the Crown to a newly resurgent Labour; Mr Clegg should not ignore that his most potent weapon is to simply end the party for Mr Cameron.

The realities of a fickle electorate and a baying tabloid monster hold that pressure on Mr Clegg to use that weapon will only increase, meaning that the question is only when he will do so.

Someone once said that the British Prime Minister is a democratically elected dictator; that in exercising the will of the people, the leader has the ability to make a great impact on the country as a whole. Harry hopes this is true, as the country has been battered and bruised both by external events but, more worryingly, by weak policy. Like a sclerotic disease, bad policy has accumulated in the UK to a point where a major rethink is needed.

With a general election forecast for this summer, Harry wonders if any of the political parties are capable of delivering anything like a required vision. The Labour party manifesto offers all the fiscal imprudence the country doesn’t need, while the Conservatives are trying to tap collective frustration by playing the alternative ticket: ‘we are not these guys’. LibDem policy appears to form in a muddle.

So into this vacuum, it’s only appropriate to suggest some priorities for policymakers in the new Parliament. The intention behind these proposals is threefold: first, to reinforce the country’s competitive advantage, second, to more ably protect that advantage, and lastly to raise some civic pride into the country.

Here is what I think government should be focusing on in the new year:

• Defend Liberty. Root to this manifesto is the idea that the government should promote freedom and protect liberty; while the British government claims to do this, excessive regulation has instead eroded personal freedoms. Well intentioned legislation can sometimes be manipulated; Harry can think of several areas where the current legislation is perverted from purpose. Britain’s libel laws, often used to suppress the media, are just one example. There are others: use of the Prevention of Terrorism Act by police seeking to suppress street photography is another needless byproduct of an increasingly Orwellian society. Freedom of speech is not a byproduct of a rich society; it is the very underpinning of that society. As part of these reforms, introduce a written constitution, and make it easily understandable for everyone. An unwritten constitution has been too easily malleable by the nefarious; a more clear enunciation of rights and process will provide a sustainable platform to defend liberty – and the country.
  
• Embrace Russia. Russia represents the single largest growth opportunity in Europe, one so large that it equates to America’s Louisiana Purchase in scale. Business already understands this, while politicians appear stuck in rhetoric left over from the cold war. A stronger relationship with Putin – arguably Europe’s greatest modern statesman – can only help the UK recover from the current recession.
  
• Check the power of government by firmly vesting oversight in the judiciary. Labour was right to introduce the idea of a Supreme Court; the next step is the proliferation of judicial review to end the daily injustices encountered by ordinary people every day – whether at the hands of overzealous traffic wardens or devious public officials. Watching the government lose a few cases would be fun for the electorate and healthy for progress. It sounds boring but a traffic court not run by the people doing the ticketing is an acute need.
  
• Restore accountability in government. End the practice of protecting the government from its own people by enacting legislation to allow public participation in municipal decisions. If a public official makes a mistake with the public purse, then that person should be sacked; doubtless not a pleasant experience. It should not be illegal to encourage participation in government.
  
• Actually improve schools. It is absurd that a G7 country is overly reliant on private education to produce an elite. The debate needs to shift from  away from ‘privilege vs not privilege’ and instead to one of enhancing state education to the point where it is a point of national pride. The existing method flatly doesn’t work. Generations of political waffle have resulted in ineffective curriculums, poor quality facilities, and the reduction of outdoor space in most British schools. Reducing exam standards is a poor policy response. It is no longer acceptable in a knowledge economy to forsake the future for the cash flow demands of the present. Parents should be invited to participate in school government in a more meaningful way; it is acceptable that richer areas will outperform poorer areas, but not acceptable that this situation is tolerable. Harry supports magnet schools and busing. Harry believes council asset stripping of schools (selling off sports fields, for example) is a criminal practice and should be stopped.
  
• Invigorate local government. British local government is a soporific joke, dominated by dinosaurs while serving as a reservoir of backward thinking. Councils should be smaller; in larger areas, they should be complemented with a mayor. Where a mayor is present, multiple councils should be integrated into a single city, and that city should be allowed to borrow to fund projects. Mayors should be given a broader scope of control over legislation in their particular area, with reference to a council. Tired satellite cities will soon reinvigorate if their leadership are given platform for vision.
  
• Embrace Federalism. The idea of common values shared by different people has been successful in the United States and elsewhere. Devolving power to local legislation emancipates the subject population, in turn generating both economic and social progress. This is as true for Scotland as it is for Maine, and as relevant for places like Liverpool too. Local politics attracts interest and participation when it is meaningful; local community leadership should be able to actually improve their communities, something which appears difficult to do in the current structure.
  
• Attack poverty with enterprise. The UK underperforms in the assimilation of immigrant communities, themselves essential to the nation’s wellbeing. Failure to assimilate immigrant populations results in higher crime rates and ultimately terrorist threats. The welfare state – which costs £150 billion per year to operate – holds back progress in its current form. A reassessment of the continuity of resource provided to the unemployed, as well as the form of that resource, is an urgent requirement. This extends to tabloid issues as well, such as healthcare tourism – an endemic problem that the NHS cannot quantify because it isn’t trying, which is theft nonetheless. The UK was once a nation of enterprise and small business; it would be good to see this sector flourish again. To make this happen, resources need to be allocated away from subsidies that allow indolence and instead focused on constructive activity. The practice of underpricing alcohol, which is widely practiced in UK retail, should also stop. The introduction of an equity culture could do more for the Midlands than billions of income support.
  
• Spend more on protection than policing. Policing currently costs the UK taxpayer more than defending the country (3p on the pound versus 2p on the pound) reflecting both the degree to which the Armed Forces are overstretched and the extent to which the country is over policed. Readiness is an essential component of military planning; spending less on the military now invites more trouble later and is therefore bad value.  Meanwhile, Brits are videoed more often than any other nation on earth, as law enforcement aims to extract revenue from an ever more unwilling group of taxpayers. Using a legal apparatus to raise revenue reduces civilian confidence in law enforcement. Invariably defended by dubious health and safety claims, this practice of stealth taxation should be curtailed.
  
• Spend some money on London infrastructure. A new airport in the Thames Estuary will reduce pressure on Heathrow and reduce some of the endemic noise pollution in the city. Improved rail networks will extend the city’s prosperity further into the countryside – and invigorate tired cities like Reading. Allowing high-rise development in the City is good; encouraging equivalent residential development in the East End is better. Attacking the valuation disparity between the East End and West End should be a policy objective. One way of reducing congestion on rail networks is to develop attractive residential options closer to where people work; London’s East End stands out as one of the biggest development opportunities in Europe.

It is doubtful that any party would have the courage to deliver this manifesto, which is a tragedy. Because ‘more of the same’ isn’t really going to help. And the country undeniably needs help.

2009 ended on a relative high note for Comrade Brown and the other Downing Street bunker dwellers; the decision to deflect national ire at stale government and hopeless overspending in favor of class war against the nation’s primary source of export revenue has resulted in brief poll stabilization and the hope of electoral stalemate this summer. Playing the class war card was a piece of political mastermind, in that it offered a double dividend: a distracted populace could then be ‘rescued’ by misplaced vindictive taxation from Westminster while the Patrician opposition were pushed into uncomfortable positions. Should Labour lose the next election, then the Conservatives will be forced to cut spending aggressively, an outcome not missed by Labour’s spin doctors. Tip O’Neill used to say that all politics are local; in the UK, the entire country would fit into the back corner of Utah, so the plurality manifests as a single locality. All politics here, it appears, are simply lowest common denominator.

British Politics 101: Color by Numbers

Herein British politics for Americans, the abbreviated version: Brits vote for MPs who represent their constituency. Most successful candidates are members of one of the three major parties: the Labour Party  (Red, Far more socialist than the Democrats, proud of their tax and spend heritage), the Conservatives (Blue, more socialist than the Republicans, but only from electoral necessity; Lefties fear ingrained fascism), and the Yellows (Liberals, who suffer from the problem that there are typically only two sides to an argument that anyone can actually remember: they provide voice to the third side). The Party with the most seats appoints the government. If are in your 30s, support animal liberation, wear combat boots and protest against war, you are likely to find affinity with the Labour camp; conversely if you think that your country has done nothing right since 1945, wear mustard colored cords in an irony free way and shoot animals at weekends, you are probably a core conservative voter.

American political overlaps don’t work well: Republicans often try to identify with Conservatives, but would never tolerate the NHS; meanwhile Democrats would stifle at some of Old Labour’s more repellant political philosophy, which appears to hold the party hostage to the country’s remaining unions. Tony Blair’s big idea was to move Labour into the center, and to abandon Clause 4, an article of the Party’s constitution calling for 100% state ownership of assets. That worked well enough to convince most mainstream voters that Labour was far more palatable than the squabbling, bitter, and confused Conservatives; anyway mustard colored corduroy was not in fashion in the 00s. Blair thus swept home three general elections, pushing the Blues into heavy minority and the yellows to irrelevance. Blair became a further casualty of George Dubya when the latter decided to wage war against Iraq, a decision which was unpopular among the British mainstream (though not among Conservatives, who get excited about any opportunity to sing Jerusalem, the preferred Conservative anthem). Faced with a choice between paying for security or paying for the Health Service, Blair went with the latter, and was subsequently defenestrated (in Harry’s opinion unfairly). This opened a path of succession for the more Old School Comrade Brown, who declined an opportunity to call a general election on appointment and instead ruled as head of the largest Parliamentary party. Under Brown’s administration, the national banking system failed, leading to the first British bank run since 1847 and the subsequently misreported and misunderstood move to save the country via a banking bailout. That has proven to be less popular than even the Gulf War, and the Reds are now deep under water in the polls. Time is now running out, meaning that Parliament must return to the people, news that is not welcome in the Downing Street bunker. Thus begins the spin machine.

Vote Nobody!

It’s genuinely difficult to get excited about either Party’s manifesto. The Reds offer more Red priorities: an increase in the nanny state, more attacks on privacy (by introducing a National ID card), more spending on the NHS, and an increase in the Chav stipend (aka “welfare”) to reduce crime. That the country is in hock to the tune of £190 billion doesn’t seem to matter to the Reds. It has occurred to the Blues that reducing the debt pile is a good idea, but they struggle to explain how they plan to do it (‘cutting welfare’ is what most people expect). The Conservatives offer a more telegenic leader than the lugubrious Brown, balanced with a manifesto nearly free of innovation, starting with the legalization of fox hunting (banned by Blair), a reduction in government spending (by  reducing the chav stipend, and no longer policing fox hunts), a reduction in several hated taxes, and an increase in military spending so the British Army can continue God’s Work in Afghanistan. The Yellows, meanwhile, offer the attractive option of suggesting that everyone just shut up and get along; as a pragmatic solution, this will get nowhere with voters.

A relatively recent development is the rise of the Nationalist Parties, who stand for very different things. The Scottish National Party wants to tear up the Union with England; it has had some success in key Scottish Red strongholds, such as, for example,  Scotland generally. The Blues currently control only one seat in Scotland; Not even Edinburgh Central, which boasts four shops selling shotguns,  three shops selling mustard colored cords and two public schools could muster enough righties to get their candidate elected. In 2010, the Scottish Nationals sense a tipping point and with Conservative complicity might succeed in gaining enough votes to jettison the hated English. See ‘Belgium’ to understand what happens next. Meanwhile,  the Welsh version, Plaid Cymru, has had less electoral success but has occupied the local assembly in Cardiff. The British National Party are another group altogether, who are Harry won’t dignify, save to say that reactionary right wing wingnuts  have scared the established parties with electoral gains in poorer communities. They scare most everyone else too.

The problem is that none of this actually matters. The average Brit cannot name their MP and has no idea what is going on at Westminster in an ordinary day. Assuming these voters actually make it to a polling station, they will always vote by color. The election’s propaganda machine is therefore aimed at the middle of the voting public, the group of ordinaries who have jobs and families, pay taxes, rarely consume services, and enjoy 2 vacations a year (skiing and sun). This group is almost totally agnostic about politics; unlike the American middle class, who think they can influence taxation, Brits know they can’t and thus don’t bother. Politicians are now attempting to convince this group that they are the correct stewards for the country. Where this group lies is known as the ‘swing’ and will be closely followed in polls. People bet on it too: spread betters have the Blues winning 350 seats to command an 87 seat majority. That would end the Red Menace and leave presumed Brown successor David Miliband confronting a 7 year rebuilding program before being able to muster a challenge against Team Champagne in the 2017 summer classic.

Harry’s Manifesto

Harry is dissatisfied with all three parties and Westminster generally. Precisely none of these parties are addressing the really central, structural issues which the country needs to confront. Seven of these issues are:

1. The assault on liberty that followed the attacks on 9/11 and 7/7, and continues today.

2. The nearly complete absence of accountability within local government, which allows an attitude of profligacy with public spending.

3. The inelastic nature of the British economy, underscored by the legions of under employed who toil in frustration, free of enterprise and equity participation, itself related to…

4. The inability of the country to assimilate immigrants and minorities, thereby giving ground to radical Islam.

5. A Government which impedes the lifelong pursuit of happiness and imposes an excessive tax burden.

6. Poor standards in many state services eg primary education.

7. Excessively generous welfare subsidizes sloth and punishes the industrious with taxation.

On the issue of tax, Harry offers the following example. Let’s say you have a real job, which pays reasonably well; for the purposes of argument we’ll call that £50,000 per year, which puts you more or less above the national average but essentially bang on the average for people who think for a living. Let’s say you make an additional £100 or so flogging your etchings on eBay. How much of the 100 do you get?  For starters, you owe the Government 40% for income tax. That leaves you with £60. Then you go to spend it- and discover that the Government actually wants more: so you spend your £60 and the government bites you for 17.5% sales tax – leaving you with £49.50 in spending power for your £100 worth of effort.

The question of whether you get value for your £50.50 investment in Comrade Brown’s Circus is a different matter entirely. But just for reference, here is where your spending goes, care of the Treasury’s excellent website:

£14.20 goes to something called ‘Social Protection’, 80% of which is the dole; so £11.16 of your hard work is a straight donation to the non employed. Britain pays out £150 billion in social security every year, nearly £2.5 grand per capita. Astonishing.

£8.94 goes to the NHS

£6.61 goes to pay for Education

£2.86 goes to pay the Military.

£2.63 goes to pay the Cops.

£2.33 goes to something called ‘Personal Social Services’, whatever that means.

£2.18 goes to Housing and Environment.

£2.10 is paid away in interest.

£1.73 goes to the Roads and Highways

And £6.91 goes to ‘everything else’.

What the UK desperately needs is this: a reform of local government, a squeeze on welfare payments, a reduction in taxation, and a return to enterprise thinking. Much as Harry wishes to the contrary, this is highly unlikely to happen.

It’s just so depressing.

An investor’s biggest fear is always that something not previously considered is known to the competition and behind a major price move; As big waves of capital fled Dubai’s markets, the story of Dubai seeking a debt holiday sure felt like that. The announcement has certainly raised the Emirate’s profile in a new and distinctive way;  exposed with the alleged impecuniosity is the opaque nature of Dubai’s sovereign accounting. The policy of restricting the public’s access to information will now result in a higher cost of borrowing. This announcement plugged into the community’s base fears about the Emirate. The exaggerated reaction to the announcement tells us that the market didn’t really know what would happen next. That will have to change for Dubai to lower its cost of debt in future.

As an infrequent traveller to the region, who enjoys a base familiarity with the local culture, it seemed impossible that Dubai had overextended itself that fundamentally. Dubai had raised $5 billion shortly before asking for the holiday; even these guys couldn’t blow that in three weeks? Gaming swiftly took over: what was the consolidated short term off balance sheet debt level? Nobody knew for sure. What was the outstanding debt schedule? At the sovereign level, the best guess didn’t look unmanageable. What about the state’s varied holding vehicles? How screwed was Dubai World? Attention sharpened on Nakheel, the state owned (and ambitious) developer – the same developer that Abu Dhabi had unsuccessfully bid for in the not so distant past. Perhaps this whole thing was just a move to try to facilitate the transfer of a controlling stake in Nakheel for a discounted price? Theories proliferated faster than facts, assisted by speculative reports from investment banks, all trying to advise without the benefit of access to information. What was happening was postulation, not speculation; an activity closer to guessing than thinking. For investors, Postulation is a dangerous activities.

Harry couldn’t ask for better validation of this blog’s view of the Emirate. Harry believes that absolute rule hurts transparency, thereby increasing risk for investors, thus impacting stability and the ability of ordinary people to improve their lives. What matters currently in Dubai is not an empirical question of whether the Emirate is bust (Harry doubts that it is) or even impecunious; what actually matters is the impact on investor confidence. The Emirate’s decision to drop a bomb on the market’s thinking (and on Thanksgiving Day, no less) will likely worry investors for a long while. Academics can debate risk pricing and efficient frontiers all they like; for emerging markets investors, these things are formed by bitter experience. For any fund manager roused from stuporiic viewing of the now nearly ritual holiday slaughter of the Detroit Lions, Dubai’s misdemeanor must be worth 200 points on the country’s risk premium. And so it was that on Friday morning, the benchmark measure of risk – the country’s CDS spread – promptly blew out. Local equities followed when the exchange reopened.

The problem faced by most analysts – and for that matter, nearly everybody else in the Emirate – is that Dubai publishes precious little data about the state of the national accounts. It is difficult to speculate in an information shortage.  It’s unclear where the State begins and the ruling family ends, just as it is difficult to calculate the country’s precise debt load. To be clear, these figures are known – often precisely; they are just not known in detail to those who are outside of the ruler’s immediate circle, or to those who might provide capital to it. And why not? Dubai has no voters. But Dubai does have investors and creditors. If these people leave or become disillusioned, the ruler’s problems intensify. In bull markets, investors are happy to buy the ticket and take the ride. But the ride looks less appealing if the probability of explosion is above zero.

While American finance bloggers vociferously debate every kink and dent in the US curve, a small group of professionals in the region spend hours trying to piece together the Emirate’s numbers. This is because the region’s inefficiency (to use a technical term) results in attractive pricing for most financial products. The region has been a deep pool for bankers seeking to write loans and generate fees, just as it has been a rich vein for equity investors looking for undiscovered bargains. Whole swaths of the region’s markets are under researched, while companies themselves openly ignore analysts while seeking leverage to address expanding demand. The Emirate is, was, and will again be a global boomtown. It just might cost a bit more to finance, which means slower growth and less glitz going forward.

News of investor displeasure finally reached the top of the Palace pile on monday, leading the leadership to attempt stabilization as only they can. A press conference was duly organized, hosted by the primary personality himself. The FT could barely contain its glee as Al Maktoum delivered the smoke and mirrors. The Sheikh’s media strategy was clear: downplay the situation without revealing any useful detail. When asked about investors’ reaction to the Dubai World situation, Sheikh Mohammed shifted tack and went for brutal honesty: “They know nothing” he replied. Taken out of context, this is borderline funny; the statement’s accuracy is certainly not funny for investors trying to make decisions in a fog. The problem is that the ruler prefers it that way, which is why local media outlets are not allowed to criticize him, and by extrapolation, anything else.

Meanwhile, the mainstream (Western) press bravely defended free speech by transmitting idiocy. First, the local edition of the Sunday Times managed to get itself sin-binned after publishing a graphic showing the ruler drowning in a sea of debt – only it wasn’t the ruler; the ST actually published a picture of an entirely different individual. But that own goal is small beer compared  to the heroism of the blow dried personalities at Fox, who managed to screw up the difference between Apple, AMD, Dubai and Abu Dhabi in a breathless telecast on Friday morning. With reporting like this in the mainstream, it is no wonder people are confused.

Dubai can, and should, respond to this situation with improved disclosure and better investor communication. But it won’t, and as a result the next big quake from the Emirate might actually trigger some contagion. While some segments of the media were too quick to reach conclusions (and too loud in broadcasting them), at least one may have accidentally voiced an interesting conclusion: that the end game is a place called Abu Dubai. Harry doesn’t think this exists yet; but more exuberant spending could lead to Abu Dhabi taking over, in which case the newly branded Emirate would be called… Abu Dhabi.

]]> http://harrycramp.wordpress.com/2009/12/02/dubai-welcome-to-the-magic-kingdom/feed/ 0 harrycramp http://harrycramp.wordpress.com/2009/11/23/dubai-monarchy-masses-and-the-metro/ http://harrycramp.wordpress.com/2009/11/23/dubai-monarchy-masses-and-the-metro/#comments Mon, 23 Nov 2009 23:53:34 +0000 harrycramp http://harrycramp.wordpress.com/?p=246 ]]> The success of Dubai’s Metro should surprise nobody.

In the middle of last year’s crises, the chat in the Emirate’s watering holes was that that the Government would economize by canceling or delaying every project in the area except the Metro. Now we get news that a few months after completion, the Metro is a roaring success; almost 3 million people used the train in its first two months of operation, while the Transit authority has leased out nearly all the commercial space in the 10 open stations. The 37 other incomplete stations are nearly fully booked also. The government will of course trumpet the wild success that this positive contribution makes to the municipality. They will cite the volume of traffic as an example that the Emirate is recovering from the recent downturn. And why not?

Harry can think of a few reasons and is thus less ready to shower the government with points. Readers may have noticed a certain aversion to absolutist rulers, and a preference that government should serve all the people, not just the most economically prosperous. Dubai provides a robust defense for this view. Plentiful censorship, a near absence of domestically generated culture, and an oversupply of 5 star hotels and shopping malls conjures up a kind of Disney-Does-The-Desert, a bizarre cross between Orlando and Kuwait City. Vanity projects proliferate at the expense of more boring, but necessary investments as the Emirate pursues the mass affluent tourist. The loser here is Joe Commuter, who gets to waste his life away in Dubai’s endless traffic. Meanwhile, the Emirate’s glitz distracts the casual traveller from the Emirate’s real asset: it is relatively more free than its neighbors. Riyadh has plenty of shopping malls, but far fewer foreign visitors. A lengthly sojourn in Saudi will convince even the most hardened rejectionist that democracy in the region is just a touch too scarce. Harry thinks the recipe for recovery calls for more freedom and less glitz.

Harry has spent a number of days mired in Dubai traffic, most of it on the eight lane ‘Sheikh Z’, the Emirate’s central artery. Piloting around the city – which was one enormous engineering project for the last seven years – invariably begged the question: why didn’t they build this earlier? The Emirate’s planners knew that congestion would be an issue; any observer of the concrete canyons that line the Sheikh Z could see that the road network would continue to suffer compounded congestion after their completion. But the Government’s focus was on flagship projects which appeal to rich people, and rich people travel by car in the Middle East. Planners were therefore not focused on mass transit. Tourists come to Dubai for the shopping, the sunshine, and the skiing  (in the Dubai mall). They don’t come because it is easy to get around the city. Businesspeople, however, have different needs and rely on excellent infrastructure to communicate and compete. One of Harry’s friends in the Emirates posits that the reason the main international flights go out at 2 am is not to allow tourists one more round of shopping but instead to make sure that they actually make the flight, such are the snarls of traffic on the road network during the day.

New York made a brave decision in 1869 to plan and build an extensive metro system far beyond what it needed at the time. Dubai has done this with local flavor, extending lines to places like Jebel Ali. Harry cannot but wonder about priorities; if the city had made rail transit an earlier focus, how much of the population’s time would have been saved? What could have been done instead of sitting in the back of a Dubai taxi attempting to improve one’s Hindi?  And then there is the environmental cost of widespread traffic jams to be considered, itself the product of an exclusively private transport system. The contract to build the metro was only awarded in 2005, suggesting a late response to an economic boom; only the absence of spaces for tracks in the central areas hints that the planners didn’t move fast enough. The Burj Dubai complex’s 3.2 million square feet of space will house more people than a small London neighborhood; it has one metro station, so you know rush hour will be fun in a few years time. More lines are planned, and this time they are going in before the developers, which is encouraging, but mass transit needs to go places people want to visit – like the center of the city.

Neglecting mass transit is the sort of planning error than only an absolute monarchy can make. When decisions are made in palaces far from the traffic jams and chaos of regular life, rulers get priorities wrong. Dubai’s apologists will point out that the Emirate is the only Arab city to actually have a working Metro; Cairo is still trying to respond to endemic congestion, while Saudi rulers have attacked Riyadh’s traffic with ostrich theory. And that closes the circle: Dubai succeeds because it is relatively better than its neighbors. Governments more in tune with the population address the community’s needs quickly – like the need for civilized commute. Harry would like Dubai to become demonstrably better than its neighbors and thinks more freedom is the answer.

Wootton Basset is a small town in the west of England, a few hours drive from London down the country’s best road (the M4). The town was previously unremarkable, save for a military commitment; it is now the closest to the front line that most Brits can get to the war in Afghanistan. It is here where British casualties return; the town has thus become a focal point for bereaved families. As bereavement increases in frequency, more and more people are questioning the price. This is a fair question to ask.

To understand why we are in Afghanistan, it is necessary to understand our enemy.  The west, which embraces freedom of expression, is currently in conflict with a group of people who do not. We spend money on defense precisely to protect the values – and laws – that we espouse as a society. Confronted by people who seek to disrupt our way of life, it is right that we should seek to protect ourselves with offense; it is easier to attack your enemy than to be attacked by him.

The enemy has deliberately drawn us into a quagmire. Afghanistan has always been a challenging battlefield, whether you are deploying forces by helicopter or by mule train. The geography is drawn in vivid extremes; the harsh climate has supported a tribal system of government as alien to the western model as any we might find globally. The Taliban are embedded and pay local farmers. One of the West’s stated goals in the current Afghan campaign is to liberate the country from the dark ages; whether the locals are interested in this transformation is left unsaid. But when people wish to argue in favor of the campaign, they point to new schools, improved levels of female literacy, and a variety of other indicators that suggest that this transformation is making enormous strides. Maybe it is; but Harry is not of the view that this is our primary mission objective.

The complexity – and cost – of what military thinkers call asymetric warfare is designed to challenge a democracy’s commitment. War aims are opaque, losses appear to outnumber victories, and the enemy appears simultaneously faceless and omniscient. In a modern, media driven war, the enemy’s central strategy is to not reveal its costs so as to leave the Western population to conclude that only their boys are dying. Defeat in asymetric warfare happens when the costs of policy exceed the policy’s popularity.  Democracy’s enemies have always misunderstood the commitment that the west is capable of deploying in support of its values; in Afghanistan, that debate is approaching zenith. The problem is this: the bad guys both predicted and expected this outcome; pulling out will be viewed locally as a Western defeat, which would be bad. The bad guys knew all of this before we started; their logic in drawing us into the conflict was deliberate.

To defeat the enemy, we need to understand our opponent’s objectives. We face a popularly supported, collective insurgency who aims appear clear. To understand what they seek, it is pertinent to understand how they arrived at their position. Here is Harry’s abridged take:

1. Arab governments are some of the world’s poorest for social mobility. Government in the region would be more familiar to Shrek than George Washington. Wealth is unevenly distributed; there are parts of Jeddah where poverty is positively world class. From the roofs of these slums you can see the glittering palaces of the royal family across the bay. The poor in the region stay poor; before 9/11, the Saudis were perfectly happy to run 30% unemployment in under 30 males and nearly 100% unemployment in Saudi females. The lack of social mobility endemic to monarchy is as present in the region as it is anywhere else; money begets money, and everyone else is left behind. Kuwait is no better and Egypt offers a portrait of urban frustration reflected in the nation’s wonderfully cynical sense of humor. Offering a better deal isn’t difficult; unchecked, these movements become viral very quickly.

2. Watching the local news in Riyadh (or anywhere else in the Arab world) reveals a propaganda strategy: deny balanced reporting and instead accentuate the glory of the leader and the evils of other countries. The objective is to displace the electorate’s frustration. Harry’s most recent trip to the region coincided with Ramadan; the local television station carried footage of the evening prayer, which included an admonition to reject polytheism and Crusaders and Jews. These would be the same Crusaders and Jews which figure prominently in Al Qaeda commentary; the difference is that the speaker was a member of the Saudi Royal Family. The nightly news is really no exception: crimes against co-religionists committed by non believers are offered up in heavy rotation.

3. The third and final component of the national strategy: take Uncle Sam’s coin and keep the locals quiet; this is part of the reason why elections in the region are both rare and typically pointless. The opposition is generally not allowed a public run. In Saudi the ruling council is actually appointed by the King; in Egypt, the local government blocks the real opposition from standing and then disrupts polls in areas where the regime feels it might get tarred rather than beaten. Kuwait’s ruler regularly suspends the national assembly when its decisions displease him.  In Afghanistan itself, the West’s man secured victory though the deployment exactly the electoral tactics that we’re trying to eliminate.

Put yourself in the position of an unemployed 24 year old Saudi male who lives at home with his parents. Our 24 year old goes to the mosque during the day, and is offered essentially no hope of improving his position elsewhere. He may have a degree; there is a high probability that it is in religious studies. He gets generous welfare support from the Government to meet his daily needs, and is essentially free to live out his days with his X-Box. One day, he meets someone who puts the ducks in a row: You, the 24 year old, are going nowhere, because the King doesn’t care. Meanwhile, nothing is being done about the grave problems facing the nation. You, the 24 year old, can effect a change, right the wrongs, and join a just cause. Suddenly, our 24 year old has been provided with a purpose and a moral code. This process is called radicalization, and it results in our case study traveling to a camp in the Pakistani foothills to learn how to shoot the infidel. This message resonates with anyone who is disaffected, out of work, and struggling with self definition. It provides direction, as well as a feeling of belonging. To join the movement is to stand up for what your community believes in; it gives you meaning. And for the avoidance of doubt, those infidels they are shooting at are people like me.

The senior leadership of the movement have a number of longer term aims. Their primary objective is the overthrow of the region’s governments; to do this, the movement must first show the weakness of the sponsor (currently the USA). Then it has to defeat the sponsor in battle, and thus weaken the resolve of the West; victory imparts credibility. If the West pulls out of Afghanistan, the next battle will be more urban, and therefore incrementally more costly. Once that battle is joined, regimes knocked over. After that, it is lamb kebabs for everybody and $150 oil, as the great vision is realized. To win in this conflict, the senior leadership must survive, continue to generate cash (to fuel the movement), and repeat the feat achieved against the Soviets; they have to make the West blink. The costs, in both human life and resources, only spiral upward for everyone involved.

Put simply: the Taliban is fighting a battle against the West that it resolutely believes it can win, a struggle which enjoys material sympathy from a variety of sources in the region. If the West pulls back, we cede the cash raised through the opium trade; that cash will be recycled into yet more threats, more violence, and ultimately far less liberty. Pull out, and Wootton Bassett will cease to be the closest you can get to the front line in England, because England itself will become the front line. Deny the enemy resources, attack the problem at its roots, and the revolution is marginalized.

This evening, the BBC carried an interview with a British MP who was arguing that Afghanistan is not a source of terror; instead, this MP argued that Pakistan is. Harry was alarmed; failure to see this issue as a regional feature, or to mistake that one battle can be lost and the war won, is to misunderstand the severity of the challenge faced. Resources raised in one place are consumed in another. A ‘victorious’ Taliban leads to an active Al Qaeda. That makes exactly nobody safer. As every policy planner knows, the nightmare scenario for the region involves a Pakistani atomic weapon falling into the hands of the guys that brought down the Twin Towers.

The way to win this conflict is to deny the enemy access to resources, which means continued commitment to the ground campaign in Afghanistan. It also means social reform back home, to create opportunity for people who might otherwise be convinced. Saudi is making progress in this area, and has reduced unemployment in the under 30s; this is but one step on a journey of a thousand miles. Give people a reason to believe in a system, and they will defend it; when the opposite is true, we in the West have a problem. The cost of protecting ourselves increases exponentially when the threat magnifies, as it easily could.

Fighting is not an easy decision; the costs of conflict are bitter and horrible. But it is better to win early than pay a heavier price later.

Somerton is a small town in the West of England; adjectives use to describe it mark the place as being ordinary to the point of boring. Somerton has a rather nice antique building called a ‘Butter Cross’,  a little history  (including an bomb hit by the Luftwaffe on the local dairy), and a pub called the Half Moon. In this regard, Somerton is Anytown, UK – a place where the local kids see the town’s fields as walls, while City Boys plan to escape to it. Only recently, the town has been abnormal, in that it has hosted a pitched battle between politician and plebiscite which has just ended badly for the politician. This sort of thing is unusual in the leafy world of English local councils.

The English social contract is built around a simple swap: a slow pace of change is surrendered for increased material comfort; progress is deliberately slow, and it isn’t unfair to suspect that the slow pace of change in rural communities is deliberate. The state generous provision of subsidy dulls the electorate’s appetite for improvement. While suffrage is universal, the resulting endless tedium frequently returns apathy over policy. Most Brits decline to participate in local government because the rewards are few and the risks plenty. If you are on the planning committee, you might block your neighbor’s application for an extension, which might result in being barred from the local establishment; Half Moon or otherwise. This is a very real check on the officious curtain twitchers who volunteer to ‘serve’ their local communities as councillors. Apathy is mainstream, suffrage universal, and the range of debate narrow.

Somerton, however, has proven to be an exception; there has been an unusual outbreak of political activity in the town recently.

The established facts are as follows:

1. The Parish Council (the area’s ruling body) is no longer quorate following the resignation of 11 of the council’s 15 members on 27 October.

2. The Council’s vice chairman lodged a planning application to develop an area of the town called Badgers’s Cross earlier in the year.

3. Local interest is elevated.  At least 100 people attended both the 27th and the previous meeting, which is at least a two sigma event versus the ‘nearly nobody’ moving average.

4. Electoral turnout is also raised: A third of the electorate participated in a recent election for a vacant council seat. For reference, this is high for what is normally seen as a minor skirmish.

5. A local ‘concerned citizen’ has been blogging about local politics and was mentioned by the BBC as a possible cause of the above resignations. Councillors are reported to be ‘tired of criticism’ from the blogger.

While comparisons to the ‘Dukes of Hazard’ are probably unfair, certain parallels are notable.

Subjects resident in Somerton were apparently not prepared to accept development in Badgers’ Cross.  The issue was sufficiently paramount for the town’s voters to get them out of their homes and into the Council chamber on the evening of the meeting. That the planning applicant was also the Council’s vice chairman is seen – at least by the blogger – as a secondary issue. The outcome of the crowded meeting appears threefold: the failure of the Badger’s Cross Planning Application, the destruction of the council as a quorate body, and an attack against the blogger. A derivative outcome is a considerable amount of anger. Whether a triumph or tragedy, in absolute terms this is a major deal in an area where the local attractions include cheese chasing.

The BBC’s coverage reports the councilors’ dim view of the blogger, whom Harry will defend on the principle of free speech. In my view, the electorate can call a public official whatever it likes; the listener retains the right of discretion and can ignore the speaker at any time. That the blogger has garnered attention to his topic is a function of the validity of his criticism. 100+ people turning up at a council meeting suggests that the electorate cares about proceedings, a situation which should be welcomed by the local public servants. Last time Harry checked, Somerset County practiced a variant of democracy which encourages the electorate to care about the stewardship of the community’s assets; that means the entire community, not just politicians. Equally worth noting is the long tradition of rabble rousing in the field; Somerton having its own answer to Tom Paine is a good thing for the town. Apathetic voters rarely police elected officials and this is not always good for the municipality.

Bloggers are apparently a new feature in the Somerton debate, but are not so in Boston. Compare the coverage of Muck&Brass to the near reverence awarded by the Boston press to the Allson-Brighton Community Blog. A major issue in the current Boston City Council race in the city’s 9th District is the Redevelopment Authority’s desire to build a large mixed use development by the Charles River.  Locals are incensed; The ABCB is in the heart of the story and has done work of real value to expose the BRA’s intention to ignore the local voice. So good is the ABCB that the local journos suicidally recycle the site into column inches. The local authorities take the site’s postings seriously and typically attempt to engage the electorate via responses to its posts. Meanwhile, back in Somerset, the enabling nature of the technology has crowds turning up at council meetings, subsequently producing en masse resignations. Harry can find no blog rebutting Muck&Brass, but would welcome the voice.

Democracy works because it encourages debate. Attempting to silence stakeholder voices, even with implied disapproval, is undemocratic. There is appetite for change and improvement in every society and English local councils are no exception. Systems which fail to deliver improvements to voters are doomed to fail, and in this includes local government in England. Episodes which challenge the common view that the English local voter is locked in a persistent vegetative state are rare; Harry welcomes them as evidence that the system cries out for much needed reform.

On November 3rd, Bostonians can go to the polls and cast a vote on the city’s status quo. The single overriding issue in this election is this: do you, the voter, believe that the city can be better? If you think it can’t, you should turn out for the incumbent, since this candidate will always represent continuity. If you think things need to improve, or even just change, then you should reject the incumbent for the alternative. Voting is not time consuming; it is instead the easiest way to improve and contribute to your community. Harry thinks you should make your voice heard by signaling that you think District 9 needs a new direction by voting for Alex Selvig.

Here’s why:

Alex has built a business and has a real job. Not all candidates have or do – especially incumbents that are often adept at using the system to amass rewards in excess of the pittances paid to public servants. Alex gets double points because he is an entirely self made man. As a local small business person, Alex is close to the community and thus understands issues that actually matter – like Allston’s rat problem, or the fact that the local schools are closer to terrible than good. Alex is not a tax-and-spend kind of guy; instead he is a straight talker who will make an impact. Small business people are adept at watching pennies and treating others funds with similar respect. Good ones are formidable negotiators who don’t accept wasteful practices, and Alex is an excellent businessman. Harry likes that in a person.

Alex is a high quality individual. Skillful leadership is not about popularity; it is instead a function of the ability to reach the right long term decision, and then having the strength to impose that view in the debate. Good leaders are first and foremost strong, resourceful people. This is Alex to the core. I first met Alex when he was rowing for Boston University in 1986. Though not the largest guy on the team, Alex was the strongest, which is why he stroked to boat to a successful season. Alex progressed to a national championship, and then from there to the US national team. While rowing is not the biggest sport in the country, Alex’ achievements – exhibits of his deep resources of focus, strength, and competitive energy – speak highly of an individual more than strong enough to manage the dinosaurs in the City Council. When Alex decides something is important, and it needs doing, it gets done. Allston needs this kind of leadership desperately.

Alex is credible when he says he wants to make Boston a more attractive place for families. Alex has lived in the neighborhood for the majority of his life, which is not to say that he lacks the perspective to see where some change would improve things. AB’s issues with absentee landlords – who have a vested interest in jacking up rental yield by keeping taxes low, thereby maintaining the status quo – are points to which Alex is intimately familiar. Alex’s vision for AB is a healthy, diverse neighborhood, not a thin commuter community infested with badly maintained rental apartments and late night riots keggers. Harry admires that vision.

The City needs fixing, and Alex has the smarts and determination to do it. Boston is a small city with an international reputation. That reputation is enhanced by the world class academic institutions in the city, but also by the equally world class asset managers who work in the financial district. For Boston to flourish, the city needs to hold on to some of the brain power produced by our universities every year, and it needs to be an attractive and compelling destination for people our businesses want to hire. Slumping school districts, corrupt local officials, bad development, and enfeebled policy making are not the qualities which will bring the city forward. Alex is absolutely right when he says that the city’s public schools should be a magnet that draws families into – not out of – the city. It is a wonder of horror that the Boston metro area includes one of the highest concentrations of quality academics in the world, and yet the Boston Public Schools have  under served the city for generations. Harry can find no law in the City statutes that says that the Boston schools have to perform poorly and instead sees an institution that needs a good solid shake. A guy who speaks four languages, was educated locally, and now raises his own family in the neighborhood, is probably a good guy to ask to contribute to the direction of the municipality. Alex isn’t a big government lifer who feeds off the system; instead he’s a solid guy with a vision for his community. I’ll take that over the establishment on any day.

Harry grew up in Coolidge Corner, learned about merchandising in Marty’s beer locker, and bought his first pet from Jimmy’s Pet Shop on Harvard Street. When I pass through Allston, I am invariably struck by how little has actually changed. The schools still deliver disservice to the city’s families in decrepit yellow buses, the paint is still peeling on the tenements, and the crime rate is always seems higher than it should be. There has to be a better way, and that has to start with better people on the city council. If you complain about your community, or take issue with the local government, then you owe it to yourself to vote for someone other than the incumbent. Meanwhile, if you dont complain but instead think your community could be a better place, then you should also go out and vote for change.

In both cases, the best choice is Alex Selvig.

Harry notes the news that a jobless graduate has filed a lawsuit against her alma mater, Monroe College, seeking a tuition refund following an unsuccessful campaign for employment. Yahoo! reports that the plaintiff has been unable to find work since graduation with her IT qualification.

The Associated Press coverage of the story – such as it is – can be found in many places; here is as good as any:

http://news.yahoo.com/s/ap/20090803/ap_on_fe_st/us_odd_jobless_grad_sues

The Associated Press’ coverage can barely conceal their view that this story is a case of ‘local muppet sues school for being unemployable’ which is a perfect August filler story. Harry thinks the subject has merit. Schools rip students off all the time; the current difficult job market doesn’t excuse the graduate’s complaint without closer examination. This case raises questions about the utility of higher education, as much as it begs a question about the required rate of return on the investment in that utility. Doubtless, the school will fall back on the standard academic defense: pointing to the success of other students to effectively place blame on the complaining student, while the student, in turn, will argue that they completed the course yet got nothing for their investment.

Ask not what you can do for your degree; ask what your degree can do for you

Value in higher education is difficult to define, and even more difficult to quantify. What is not difficult to quantify is the cost of higher education. Since cost is a key component of the process, it is pertinent to ask how much a student would need to earn from completing the course? This will help us understand whether the cost of the education is money well spent (as an aside, this is why Business Schools allow graduate salary data to be compiled, and why they then allow it to be published). Monroe College, we have learned, is happy to charge students $70,000 to complete an undergraduate qualification in IT; what is not clear is whether this is a good investment. What is the payback period, for example? What impact does the qualification have on the candidate’s earning power? How much better is the Graduate’s earnings power with the degree than without? Implicit in the cost of the course is the idea that the student will make a return on their investment greater than their cost of capital. Given that the average American college student borrows to fund their education, and that cost varies on need, let’s imply a 5% premium to base rates to establish a rough approximation of the cost of educational capital.

The value of an investment can be represented as the present value of the incremental gain it delivers over a benchmark. If we take our base+5% as a rough approximation of the benchmark cost of opportunity, we would have to be comfortable that earning this degree would deliver the student an after tax gain in excess of this cost. The quality of the degree, we could argue, is represented by the size of the incremental pickup in graduate compensation; lets give Monroe some credit and assume that that the school can deliver the graduate a 5% pickup on cost of opportunity over time. In the case of our student, for her course to deliver value, she would probably have to make $22,625 per year to offset her $17,500 annual cost, to achieve a total of $113,000 after tax over five years, to judge her course a success. In this case, that clearly that didn’t happen.

You bought the ticket, now take the ride

Education should provide the student with more than a narrow range of expertise, and instead instill both a lifelong love of learning and the analytical processes required to master a specific discipline. While a liberal education should encompass a survey of analytical method, a vocational degree, by definition is more narrowly framed. Narrow or not, Students need to be educated consumers; Having made the decision to take a course, the student needs to commit fully to its execution just as the institution commits to provide the best guidance it can for the student. A negligent performance by a student potentially weakens both the student and the case against an institution. Meanwhile, schools need to deliver courses which properly prepare their students to succeed. Whether there are jobs available is outside the control of the school, but should be well within the student’s remit to assess those opportunities before taking the course.

Educational institutions often consider themselves to be somehow ‘above’ the noise of the market, and therefore argue that the value of the courses they teach is both perpetual and non quantifiable. This is why American schools love to present halcyon versions of the past – the message is clear: what we do works, take our courses, live happily ever after. In Harry’s mind, that doesn’t necessarily stack up; benefits might be intangible but they can still be quantified. Harry believe students need to see the school as a partner to furthering a career, not as the source of a career. Anna Ivey, who until recently was a Dean of Admissions for the University of Chicago’s Law School, makes this point clearly: not everybody who has watched lawyers on television should become a lawyer. This is because a dullard student is unlikely to earn a return on their tuition which is high enough to offset the opportunity cost.

Polish that resume, sharpen that suit

Universities, meanwhile, who ‘sell’ degree courses to candidates (as all schools do) need to understand that students who pay the fees, and perform well in classes, have a claim on the school to teach them useful things which will enhance their chances to earn back their investment. Finding a job for a graduate cannot possibly be  the sole the responsibility of the school; the absence of a job after a sustained campaign, particularly where the candidate is judged competent by the school but not the market, should open the school to criticism. Admitting a student, in Harry’s view, is an offer of partnership, just as the student chooses to partner with the faculty in the learning process. As a student, I trust you, school, to teach me useful things, and I do the required work in good faith. I trust your insight to deliver the curriculum I need to go forward. If after successful completion of my course, I’m $70 grand poorer with nothing to show, then I’m probably within my rights to at least ask for the money back.

The real blame for this mess probably lies with the admissions office, who accept unemployable students in the name of revenue generation regularly. There is an infamous story in Boston Academia about admissions officers that goes something like this: the Dean of Admissions at an academically weak school receives a visitor from an elite school. The visitor notes the chaotic working environment in which the Dean’s team attempts to function, and asks how the Admissions committee makes careful, balanced decisions about students? The Dean, the story continues, then snorts and announces that they don’t: “I’m the Dean of Admissions. My job is to admit people, not to reject them.” Combined with an unchecked profit motive, that attitude is dangerous and should open a school to a legal review.