Saturday, 21 November 2009

Squeezing Budgets - The challenges ahead ...

Stephanie Flanders recently blogged about when and how to squeeze the budgets ... which raised lots of comments, including my own (post 4) below:

'We need as a matter of urgency to cut out the bureacratic leadership/management that add no value and create all the waste/frustration at the front line.

We need to systematically support front line workers to remove 40-80% of the time/resources tied up dealing with failure demand and carrying out non-value add activities, and re-invest their efforts into INCREASING, and CONTINUOUSLY IMPROVING the services provided.

We do not need to 'cut' services (we can increase them), but we do need to radically change (and reduce dramatically) current 'leadership'/'management', create 21st century leadership and management and install 21st century management systems* (nb it's 180 degrees opposite to what we currently have - these systematically remove waste, whereas current systems systematically create it!).

... therein lies the challenge ... and therein lies the future ... other nations have done it ... take a look here for instance ... but in the UK the toxic mixture of ignorance, arrogance, ineptitude and greed will mean the UK will avoid taking decisive action, wait until the last minute and have to try to pull itself from the brink of the abyss ...

* 21st century management systems are decoded in book for instance'.


A fellow blogger (glanafon) in a subsequent blog then posted the following:

"Leanomist, your one of these 'economystic' types I believe - So :

David Blanchflower favours inflation as a way of getting rid of the debt. I can see the argument for this as it spreads the load, hits savers, so takes money from people who have money. I start with DB because he has at least got it right saying - problem coming - when on the BoE committee.

DB is against cuts due to the unemployment issues. I can see this also. However what he has failed, from what I can see, is to explain how funding the public expenditure prop needed via borrowing can be sustained or how the inevitable cuts are to be phased in. Or how phasing cuts in later makes any real difference if growth is to remain very muted.

Inflation may get rid of the debt, which clearly helps, but it does not get rid of the size of the public sector which is now too large following a contraction in the economy. If there is little growth - the Japanese lost decade - then the public sector has to contract.

A total tax take - direct and indirect - of 43 to 46 percent, mainly 46 percent, has been in place for decades suggesting that 46 percent is a long term ceiling otherwise it would have been breached under pressure a long time ago.

So DB is gambling on growth from what I can see, that has to be his position. But if this is the japanese lost decade that doesn't work, again from what I can see.

Assuming the banking sector is not going to grow at any great rate, the suggestion has been manufacturing takes up some slack. As Kudospeter posted at number 29 'Manufacturing as a percentage of GDP in the UK for the following years were: 1971 31.7% 1981 26% 1991 21.% 1998 15.4% 2003 12.7%, ie an almost straight line decline. I cannot see this trend reversing so where is the growth to come from. Housing percieved wealth has been used as the engine to push individuals expenditure and borrowing and that engine has blown up.

So how can public sector cuts be avoided. I cannot see it. Can't say I like it but I can see it coming. I can't say I know where things are now but a near 10 percent drop in the size of the economy from peak has been mentioned. That was during a time when the public sector was reproted as expanding still at 2 percent. So the hit has been in the private sector and much bigger than 10 percent, much bigger. So the public sector sooner or later has to follow that stat, unless there is quite dramatic growth.

Meanwhile we are close to 1 million young unemployed with an education system pumping the young out every year. OAPs are demanding they work longer which will reduce job release back into the economy.

Now we have Gordon saying he wants to commit to halving the debt, although as usual nobody really knows what he is referring to other than hinself. Halving the debt can onlt mean a mix of inflation - repayment - taxation. All of which are designed to extract money out of the economy. Taking money out of the economy means its not there to be spent.

So Leano can you tell me have I missed anything much in this ..."


which i will try to respond to in my next post ...