Maybe young people aren’t politically apathetic snowflakes. Maybe they are cleverer than the rest of us?

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When I say the rest of us, I mean older people.  I am 49, which is well beyond the cut off for being young.

I had 2 experiences this week which were in such stark contrast that I found it hard to reconcile them.

The first was the announcement by Theresa May that we would have another general election.  Psephologists were quick to assure us that this election, just like the last one, and the Brexit vote, would be decided by older voters.  Young people don’t turn out to vote in the same numbers as older people and as a consequence would be largely ignored by political parties. 

Political influence in the UK is firmly in the hands of older voters, a Gerontocracy.

At the same time as the media were working themselves up into yet another election frenzy my company was doing the final round of interviews for a new PR and Advertising Agency.   The Gin market is getting very crowded, with lots of flashy brands who buy in their products mass produced, and try and pass it off as small batch craft make. We needed a new approach to help differentiate us from the fake craft Gins jumping on the band wagon.

Each agency who pitched to us included a special section on younger consumers, who they called Millennials or Generation Y.   This group of consumers are particularly influential, very loyal to brands who they perceive as sharing their values, and willing to pay a premium for high quality products that matched their aspirations.  No-one included a special section on older consumers – they tend to be less willing to switch to new brands, and prefer established mass market products like Gordons.  While older people are richer younger customers were prepared to spend more on products like craft Gin.  We were frequently advised to leverage our brand values.  If anyone has a large brand lever I could borrow I would be grateful.

Economic influence is firmly in the hands of younger consumers

The apathetic younger voters that the psephologists were talking about aren’t exactly the same group as the young consumers the Agencies were targeting – we don’t target 18 year olds for example, for reasons of corporate responsibility.   There was, however, a big enough cross over between the 2 groups to make it a real clash – the people who were being written off as irrelevant in the political arena, were the same ones who our advertising and PR agencies were telling us were economically hugely influential.  Taste makers.

One of the key principles of free market economics is that Governments don’t have to regulate markets in order to produce moral or ethical outcomes.  Markets can do this by themselves.  Consumers will choose to buy from producers who share their values, and will shun companies who do things they find ethically undesirable. 

This is David Cameron a few years ago making exactly this point:

http://www.politics.co.uk/comment-analysis/2012/01/19/cameron-s-moral-capitalism-speech-in-full

Promoting deregulated free markets has been very popular with Conservative politicians, who, I think, expected that the moral and ethical framework that they would promote would match with their own Conservative world view.

Instead it has become a tool for younger voters to express their own, more Liberal worldview.   Once Trump took power businesses who were seen as pro-Trump, or who stocked Trump products, were targeted for boycotts, as were companies who advertised on websites like Breitbart.   

Businesses who want to sell to younger consumers need to demonstrate that they share their values, which are pretty much exclusively Liberal.  That is why Pepsi decided it was a good idea to make that terrible commercial trying to align itself with protestors. 

This has led to the odd phenomena recently of Conservative politicians arguing for deregulated free markets while simultaneously criticising younger liberal customers for exercising their free market economic power by boycotting businesses aligned with Trump.   

I am picking on the US for examples because the culture wars between Liberal and Conservative values are more in your face than in the UK.  This doesn’t mean that it doesn’t happen here too.

High Tech economies like the UK and US have an increasing demand for graduate and skilled technical employees, and a declining demand for manual labour.   As a logical consequence their wages go up, and they become more influential economically and culturally.  A glance at cinema listings reveals how influential the tastes of this group have become. When right wingers portray themselves as a counter culture fighting the established order there is a degree of truth in it.  The dominant culture in the UK and the US reflects the values of college graduates, Liberal and progressive.   One of the biggest complaints of Conservative older voters is that the world has changed, and that no-one asked them.  The Brexiters slogan – Take Back Control – was so powerful for exactly that reason.  Governments have indeed given up power, but not to Brussels.  They have given it up to companies, big and small, and by extension to those companies customers.   

It seems unlikely that this situation will change any time soon, regardless of how Conservative the next Government is. 

I have never heard a millennial or a Generation Yer articulate the view that it is easier to wield economic power than it is to wield political power.  Rather than a conscious ideology I think that it is the consequence of a generation who grew up being told that there is no alternative to free market economics.  They see the world in those terms, and when they want to change the world they use the exact same tools of free market capitalism to do it.

Clearly this approach has it’s limitations – you can’t boycott Brexit for example.  But in a free market capitalist economy economic power beats political power 9 times out of 10. 

The idea that younger voters are apathetic is wrong. They are wielding power and changing how the world works – just not by the ballot box.  Often they are doing so much more effectively than any politician.  This is why the US and the UK continue to become increasingly Liberal and tolerant societies despite the noisy prevalence of politicians who promote Illberal and intolerant politics.

Maybe the meek will inherit the earth after all….?

Productivity is rubbish. Inefficiency rules. Why Craft Gin is better than United Airlines.

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Anyone who reads the research papers and speeches from the Bank of England will have come across loads of scary reports about the terrible state of productivity in the UK. 

All of the data shows that the UK lags behind most of our competitors in output per capita – British workers are less productive than their foreign counterparts.   Currently we are 18% less productive than the G7 average.

All of this plays into a set of vague and lazy stereotypes about British workers not being as hard working or well qualified as their competitors, stereotypes that have been around for decades, and which are often used to support a political agenda.

This nonsense from Sky follows this idea of pampered British workers and adds in a whole lot of fact free snarkiness about Millenials and snowflakes.  I’ve taken a picture of it so you don’t have to search out the link, and give them your clicks.

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As you may have spotted from my recent posts I believe that a lot of the data we use to calculate productivity is wrong.   The UK has less employment than we think.   I also think that we are underestimating small business manufacturing output (I will come back to this in a few weeks).   

But even if you assume that some of the problem is rubbish data it is hard to explain away a gap that big as data noise.  It looks like something happened post credit crunch that sent the UK in a declining productivity path, with predictably low levels of growth. 

In theory efficiency should improve as inefficient companies go bankrupt and their market share is taken by more efficient ones.  Research however doesn’t support this – since the credit crunch efficient businesses have gone to the wall, and the firms replacing them aren’t as productive.  During the credit crunch we all got a stark lesson at how bad US and UK capital markets are at allocating resources to businesses.  It looks like a lot of reform of banking is still in needed.

This matters hugely, because post Brexit as we strike the Global trade deals that we need to survive British  companies  will be exposed to the full force of international competition.  Even the world most famous Liberal Economist agrees:

“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker” Prof Paul Krugman

But what if inefficiency or lack of productivity is a feature not a flaw?  What if customers actually prefer inefficient or unproductive businesses over efficient ones?

My business is inefficient, and has very low productivity.  The number of bottles of Gin which each worker produces in Durham Distillery is much lower than Gordons, Bombay Sapphire, or Hendricks.   Most UK Gin is actually made in a small number of massive Gin factories, which produce lots of different brands, with slightly different branding, some of which try and pass themselves off as local craft distilleries.   There are 3 different “Lake District” Gins on the market, 2 of which are made in Warrington.

Even though we work very hard the nature of our product and our production process means that we make fewer bottles of Gin per person than lots of our competitors.   We will never ever be as efficient as the industry average, and frankly we don’t want to be.

The same is true right across the entire food and drink industry; craft beer, artisanal bread and cheese, in fact anything that is “small batch” or “craft” is by it’s nature inefficient and has low productivity. 

Lots of customers actively prefer this, to the extent that big producers try and disguise mass produced products as small batch or local.  Tesco’s recent launch of yet another “Farm” branded range of intensively farmed food is a good example.    

I wrote a few weeks ago about Doctors, hairdressers and why as customers we don’t really want them to be efficient.  We want them to spend time with us, because that is what we value.   Even if we don’t ever meet the craft distiller or artisanal baker we are bought into the idea that we are paying for an individual with skill and talent to make us something which is more valuable than mere mass production.  It honestly doesn’t take Starbucks that long to make a decent cup of coffee, but the rigmarole of the barista is part of the experience.

The same trends are hitting clothes too. The last pair of jeans I bought were made in the UK, rather than mass produced in the far east where labour laws make it easier to exploit workers and environmental protections are weaker. 

Post Credit Crunch we are more and more skeptical about big business, and about the dodgy practices of some big companies.  We value products more when we can see that they have been made to a higher standard, and where we can identify with the producer over mass produced high volume stuff.

At the other end of the economy high productivity/low cost production has been in the headlines for all the wrong reasons.  The best example of the awfulness of productivity this week was United Airlines, who apparently decided that it was OK to actually beat up one of their own customers because he had got in the way of the productive allocation of human resources.  This is an extreme example, but the rest of us will have had experiences of businesses who organise themselves around an efficient and productive workflow which makes no sense at all to customers who find themselves trying to navigate through endless uncooperative departments.

This would explain why productivity declined post credit crunch. As we lost our faith in mass produced, intermediated capitalism we rediscovered our love of small batch, inefficient and local.   We don’t however want to get rid of capitalism, because we like the stuff that capitalism produces for us, and enough of us remember how awful most of Eastern Europe was before the wall came down.  We just don’t want horse meat in our Lasagne.   British jeans companies may not be as cheap as Sports Direct but they are less likely to be doing ghastly things to the people who are making their clothes.

Post Brexit prices will rise as the pound falls, and the bureaucratic cost of doing businesses rises. This is bad news for low price/high productivity businesses who import production from abroad. But is has less of an impact on local producers.  This will make small batch, locally made, unproductive products relatively cheaper against imported, mass produced high productivity industries.     The unlikely end point of Brexit could look like a revival of the craft based William Morris version of Socialism.   The hipsterish new artisans and Edwardian radicals do share a similar taste in facial hair after all.   

It probably won’t improve the customer service of companies like United Airlines though.

References

I haven’t referenced this blog academically, but if you want to read more…

This is Andrew Haldane from the Bank of England’s on productivity

http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech968.pdf

This is a House of Commons Library paper on the same subject

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN06492

This is a Bank of England paper which looks at inefficient businesses replacing efficient ones

http://www.bankofengland.co.uk/research/Documents/workingpapers/2014/wp495.pdf

As does this NESTA paper on unproductive entrepreneurship

http://www.nesta.org.uk/sites/default/files/other_productivity_puzzle.pdf

This is a great blog looking at poor management and low productivity

https://flipchartfairytales.wordpress.com/2017/04/04/productivity-and-bad-bosses/

And this is where I bought my jeans from:

http://communityclothing.co.uk/about-us/

Deep House Victims Mini Bus Appeal

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A couple of weeks ago I wrote about the Labour Force Survey and the Claimant Count, and why they might not a very reliable source of information on what is happening in the UK economy.

The Labour Force Survey and the Claimant Count aren’t the only ways the Government gathers information about employment.  HMRC and DWP also collect information from employers through Real Time Initiative. This measures employment and employees, and as it comes direct from businesses it should in theory be really accurate.  It should be the gold standard information source on employment in the UK.

In 2010 the incoming coalition government announced they would be implementing Universal Credits (UC), bringing together a range of benefits into one single payment in order to increase the incentive to find work and reduce the costs of benefits administration.  Universal Credits had originally been a Labour Party policy, and if the Credit Crunch hadn’t happened it would have been Gordon Browns great socialist idea.

To make this work employers would need to provide up to date information to the government – Real Time Information (RTI).  Every change in hours worked, money paid would be tracked, in real time by an on line system, which would in turn feed the Universal Credits super computer.   

This was a massive change for HMRC who previously only changed data like this annually in retrospect, and even then they got it wrong far too often.   It is also spookily similar to the original policy formula that John Major gave to the CSA.    For those who have blotted this particular policy debacle from their memory the CSA was instructed to collect all data on the financial activities of families in their remit.

All data.   

At the best of times this was a bonkers undertaking, but sharp eyed and disgruntled parents, mostly Dads, realised that they could smash the system by doing nothing more than submitting endless Change of Circumstance requests. 

Universal Credits should have been up and running and everyone fully transitioned to the new system by 2015 at the cost of just under £2bn, but immediately ran into trouble.  There was an NAO investigation, and a damning Public Accounts Committee report.   The Government pulled the plug on UC a year or so later and around a billion was written off.    

Rather than accept defeat the coalition immediately launched another programme also called Universal Credits, hoping that no-one would notice that these were 2 different programmes with the same name.  The 2nd version of UC had all of the problems of UC1, but none of the advantages.  The Resolution Foundation have calculated that the cuts to benefits mean that the incentive to work more hours has gone completely, while the bill for Universal Credits is somewhere near to £19bn.

To put that in perspective the NHS Programme for IT when it was scrapped in 2013 had burned through nearly £10bn to connect 1.5m end users.   UC will cost £19n for 64,000 end users.   

While UC was being stopped and relaunched HMRC were steaming ahead with their bit of it.  RTI was introduced years ahead of UC at a time when my business was starting to employ people.  When we tried to register for PAYE there was a couple of months waiting time to register and employ someone.  I had a massive tantrum with HMRC and they fast tracked my application.  A technical specialist from the PAYE/RTI team actually set up our company with RTI and Basic PAYE tools, the software package used to submit RTI data.

At the time they were doing this they were reducing the number of staff in HMRC. It is wrong to be too harsh on the people who are left behind. They are understaffed, pushed into generic structures which don’t allow them the time or training to gain the knowledge they need to do their job.

Predictably HMRC set us up wrongly.  So wrongly in fact that we have had problems with every employee, with every single pay roll tax.    Income tax, NI, student loans, everything.  We were £1000s of pounds out on every tax for every employee.    

On one occasion it was because the system has created 2 employees with exactly the same name, address and NI number and had wrongly credited all of the payroll taxes for that employee.  They told us to stop paying payroll taxes until the sorted it out. Then threatened to fine us for not paying the taxes they told us not to pay.  This all sounds eerily familiar to the problems that haunted the CSA for years.

The photo at the top of the page is the Blue Monkey Club in Sunderland.    It was a rave club in the 1980s and early 1990s, with a pretty dodgy reputation.   One of the chaps who ran the Monkey switched careers and now runs a payroll services business.  He knows more about sorting out payroll taxes and Acid House than anyone else I know.  We outsource our payroll to him.

In our most recent run in with HMRC were contacted last year to tell us that we owed them £1100 in underpaid tax and NI.  We rang HMRC to ask why they thought that, which period it related to, and which employee?   6 months later, one formal complaint, dozens of letters and emails, and a conference call with 2 Director Generals later we are still none the wiser.

I asked the boss of our payroll services firm for his professional opinion. It was:

“HMRC are really shit. They send loads of these letters.  They are all wrong.  All of the PAYE data HMRC has is wrong. They don’t know what they are doing”

He also confirmed that Move Your Body by Marshall Jefferson is the definitive mid-80s house record.

He is a wise man.

I have no doubt that the UK labour market is more flexible and more resilient than it was in the 80s, but the current government narrative of record employment is based on the flimsiest of data.   Badly thought out policy changes, poor IT systems, and an austerian approach to the public sector have left key government departments without the information they need to understand the client groups they are servicing.    

The horrific stories that leak out about the hardship that people trying to claim benefits are experiencing have been so well rehearsed that there is little more I can add.   Putting the chaos behind the scenes and the cruelty inflicted upon claimants together I think that this is the single worst thought out piece of social policy since Care in the Community, and like CITC it will take decades and billions to sort out the mess. 

At the heart of it is a view from central government that the lives of poor people must be controlled as far as possible, and in order to do that government must measure and manage the minutiae of peoples lives.  This is big government at it’s worst and most expensive.   

This might seem like a gripe about big government, and the insensitive way it deals with people.

But we are about to enter into the biggest change ever in how HMRC operates, a new world of tariffs, border controls and documentation where none previously existed.  We will enter this world with a plan to shrink the size of the civil service even further.   

If we aren’t coping now, what happens next?