Thursday, 26 January 2017

Walls – then and now

Here's one they built earlier
On 26 June 1963, five months before his assassination, John F Kennedy delivered the most famous speech of his presidency. In Berlin, facing a huge crowd, he told the world:

“Freedom has many difficulties and democracy is not perfect, but we have never had to build a wall”.

“While the wall is the most obvious and vivid demonstration of the failures of the Communist system, for all the world to see, we take no satisfaction in it, for it is…an offense not only against history but an offense against humanity, separating families, dividing husbands and wives and brothers and sisters”.

A quarter of a century later, in 1987, President Reagan took the now-regular pilgrimage, standing in front of the Brandenburg Gate to echo the same sentiments.

“Behind me stands a wall…part of a vast system of barriers that divides the entire continent…a gash of barded wire, concrete, dog runs and guard towers”.

Just like Kennedy, Reagan understood that the scar wasn’t just physical. Walls are concrete manifestations of opposing views of the world.

As he put it: “Further South, there may be no visible, no obvious wall – but there remain armed guards and checkpoints all the same. Still a restriction on the right to travel, still an instrument to impose upon ordinary men and women the will of a totalitarian state.”

Half a century after Kennedy’s speech, times have changed.

In Israel, Prime Minister Binyamin Netanyahu justifies walls and fences saying: “In our neighbourhood, we need to protect ourselves from wild beasts…We will surround the entire state of Israel with a fence, a barrier.”

Banksy, among others, remains unconvinced. But there are also plenty of people who support the erection of barriers. In January 2017, President Trump announced an Executive Order to build a wall on the border with Mexico, saying:

“A nation without borders is not a nation. Beginning today the USA gets back control of its borders…My staff will begin immediate construction of a border wall. So badly needed.”

It is his choice. As it is our choice. We can choose to be the person who builds walls to separate ourselves from others. Or we can choose to be the person who brings down barriers between people.

Saturday, 27 February 2016

A new idea for pension reforms


The chancellor may have gained a reputation for sound economic and fiscal management, but he is also prone to over-complexity.

Where Nigel Lawson once cut the Gordian knot in the 1980s, the elegant simplicity of his tax reforms have since been undermined.

One important component - and indeed one much in the news of late - is that of pensions. Everyone hates the current tangled, incomprehensible system. Currently on the table we see Osborne’s ‘pension ISA’ and a flat rate system.

Pension reform can feel this way
I propose something different, something both simple and robust. Significantly, it breaks out of the ‘EET’ vs ‘TEE’ paradigm that currently constrains thinking.

The nub of it does see ISAs and pensions merged. Crucially, though, there is a build-in mechanism to discourage withdrawals before retirement. What’s more, the system is relatively easy to administer. So how does it work?

Each citizen is issued by the government with a ISA/Pension/401k account wrapper (possibly based on their NS number).

As with ISAs, the account is transferrable between Financial Service providers and can contain multiple asset types.

Any money an individual adds to their account is first subject to income tax, but then gets a flat rate tax rebate (as per pension reform being currently touted).

Any money withdrawn before the individual reaches official retirement age is taxed at source by the provider at the same flat rate. After retirement, like an ISA, withdrawals would not be subject to tax.

Annual limits are high (like £40,000?), as would be the maximum account balance (£1m to £2m?).

I regard this as elegant because it’s flexible and easy to understand. Citizens just have to think like this:
If I contribute anything, the government tops it up by x% 
> If I withdraw anything before retirement, the government knocks off their initial contribution ‘on the way out'

There is thus an in-built incentive to try to keep the money in the account until old age, but at the same time there is no actual penalty for withdrawing the cash earlier if you need it (compared to an ISA). Bingo! People gain the flexibility they want and the government doesn’t do too badly either. If push came to shove, withdrawals after retirement could also be made subject to income tax.

Of course, it’s not quite that simple. Issues remain. What about DB schemes? What if the flat tax rate changes? Should the annual limit be the same for all ages? How do you encourage companies to top up their staff pensions? What happens on death?

Though obviously important, none of these issues are insurmountable. Solutions (or at least partial solutions) to most of these questions have already occurred to me, but I won’t bore you with the details here. I would prefer to concentrate your minds on the central feature above and welcome any feedback. Is there something in this or is it fatally flawed? 

Friday, 24 July 2015

Spinning plates, tech giants, Newsnight and the Bank of England


Well, must say that was quite weird – to switch on Newsnight tonight and find that the chief economist of the Bank of England had been thinking the same thoughts as ones running around inside my own head.

Andy Haldane (for it is he) was saying that the extreme primacy of shareholders is damaging capitalism.

His interview has forced me into belatedly putting pen to paper (or Mac to Blogger as it is nowadays). I wasn’t coming at it from quite that angle, but had some weeks ago intended to say the following…

I was thinking about the relationship between the great tech giants: Microsoft,  Amazon, Apple, Facebook and Google - and how one might coach their chief executives to triumph over the competition.

My thesis was simply this – that the winners in the 21st century corporate wars will be the ones that best balance three sets of stakeholders at the core of what they do: the owners (shareholders), the employees and the clients. It struck me that historically these companies have by habit and culture ‘weighted’ these three interest-groups rather differently.

For example, although Amazon preaches the gospel of client-centric design, increasingly one gets the impression the company is consumed by the desire to satisfy shareholders – initially at the expense of its lowly employees – and perhaps now even relegating its own clients to a poor second – as witnessed by their increasingly aggressive up-sell techniques. As with the banks, the ‘lifeblood’ of their business, their client base, at some imperceptible point inflects to become a passive cow, there to be milked.

Anyway – it struck me that running these companies is like spinning a plate on a pole. Now imagine that there are three weights – placed at even intervals along the circumference of the plate. If the weights are all about the same, the plate spins nice and smooth. But if one or two of the weights are heavier, then the plate’s orbit inevitably becomes lopsided.

If the differential isn’t too extreme, the plate continues to spin – just at an inclined orbit. But if the difference gets too extreme – then of course the orbit is no longer sustainable and the plate comes crashing to the ground.

It is my view that company failures are often down to an inability to balance these three sets of stakeholder needs properly over the long haul. Orbits become lopsided, the fall comes and disintegration follows.

My intention had been to pitch this as some kind of smartipants business insight. But seems I wasn’t so clever after all. The same thoughts are out there. But at least I should console myself that they are being broadcast by the chief economist of the Bank of England.