Pensions killed Detroit

I originally posted this in 2011 (from a British perspective).  Tonight, as Detroit files for bankruptcy it seems worth revisiting it.

At a time where public sector pensions have been at the heart of our national debate its worth thinking about what happened in the United States.  Why? Because expensive and outdated pension schemes have destroyed the auto manufacturing industry in Detroit and with it the city!

Detroit is a city built around the car manufacturing industry.  It used to be dominated by the big 3 auto companies – GM, Chrysler and Ford.  In recent years the industry and the city have collapsed.  In the 1950s 1.8 million people lived in Detroit.  Today it is less than 800,000.  There has been a 25% decline in population in the last 10 years alone.  At the root of this has been the decline and fall of the car manufacturers at the heart of the economy.

Why have the big 3 auto companies declined?  Well, they had been relying too much on SUV sales and not making enough small and hybrid cars and they have been dogged by poor quality.  However, the biggest single reason has been the massive cost of their employee benefits and pensions programme.

Between 1993 and 2007, GM poured $103 billion into funding their pensions and healthcare scheme.  Over the same period they could only afford to pay out $13 billion in dividends.  GM also had to work hard to play catch up as funding payments into the scheme fell behind.  At the start of the 2000s it had to pay an additional $20 billion to catch up payments and agreed to pay a further $30 billion to fund future healthcare liabilities.  Note I am talking billions here, not millions!

The point is the pensions and benefits schemes totally starved GM of investment and made a massive contribution to GM falling behind developments in the US car market.  Chrysler and Ford had similar stories.

Many other car companies based in southern or mid western states have been able to come in with far cheaper operating costs and beat the big 3 Detroit firms in competition.  Notably Nissan whose costs per worker in the US were more than 40% cheaper – largely because of the costs of the employee benefits package.

The Big 3 employee benefits package had been set up in 1950 in a deal arranged by the Union of Auto Workers UAW that became known as the Treaty of Detroit.  In a time of full employment and little competition the industry committed itself to open ended final salary arrangements with fixed guarantees.  As the workforce has grown and aged and as workers have lived longer these have become more and more expensive than ever envisaged and the companies have found themselves locked into open ended arrangements where they cannot control the costs.

Detroit and the car companies have been not alone in their pension schemes causing catastrophic loses. A huge pension liability created a budgetary nightmare for New Jersey and the city of Vallejo in California actually filed for bankruptcy because it couldn’t handle the costs of police department pensions.

Roger Lowenstein wrote about this further in his 2008 book “While America Aged:  How pension debts ruined General Motors, stopped the NYC subways, bankrupted San Diego and loom as the next financial crisis.”

Change is unavoidable in the UK

The UK faces similar issues.  Through the 50s and 60s – a time of effective full employment - there was a massive growth in Final Salary pension schemes.  The UK developed a parallel system of occupational pensions provision for those in the public sector and larger companies along with growing state provision.

13% of the population had been in occupational schemes before the war – mostly in the public sector.  By the end of the 1960s this figure was 53%.  However, in 1961 life expectancy for men was 68 years and just under 72 years for women.  In 1908, when the first state pensions were introduced they kicked in at 70, an age many failed to ever attain!  Today life expectancy in the UK is 77.9 for men and 82 for women - and growing every year.

Longevity – the fact that we are living longer is making pensions provision more and more expensive.  There are of course other factors like salary inflation but this factor alone is at the root of the problem.  After the war people were retiring at age 65 and expected to live on average about 5 years or so in retirement.  Today people, in pension schemes are retiring at 60 and can expect to live to 80 on average – 4 times longer than envisaged when the pension schemes were conceived.

Private sector Final Salary pension schemes in the UK are therefore dead!  They have been for the last 5 – 10 years.  While existing members are still in the schemes, they are all closed to new entrants.  Companies can no longer afford them and given that the benefits are fixed and guaranteed they are an open ended and growing commitment.  They are no longer commercially tenable and are a risk to the business.  That is why they are dead.

One pensions commentator, I think it was Tom McPhail, said last week that we will probably all have to spend a little less, save a little more and work a little longer to fund our retirements in future.  I think this is sound and reasonable advice and actually one of the most intelligent things I heard last week.

Final Salary pensions continue in the public sector – unfunded by investment and paid for by general taxation.   Yes, their projected costs are set to fall with CPI rather than RPI indexation and workers make a contribution.  But the projected fall in costs are because of these small reforms already in the pipeline.  They are still hugely expensive.

Pensions are in fact deferred pay.  Today, because of the current pensions position it often pays far more working for the public sector than for the private sector.  This means the wider population are being asked to fund pensions which are far more generous than anything available to them.  This means funding something akin to our entire defence spending budget.    And no economy is going to last for very long where it is more attractive to work for the public sector than for the private sector!

Ros Altmann, the Director General of Saga and something of an expert on UK pensions, argues that Final Salary pensions are actually fundamentally unfair as they disproportionately award high flyers being based on one year’s salary at the end of their career rather than taking into account, say, a lifetime of service and contributions.  It is right to reward high flyers when they are working – maybe not to continue to do so often for many years longer than they actually worked for their employer!

The true costs of final salary schemes are unsustainable to fund as the private sector has discovered.  Employers can’t underwrite unquantifiable, open-ended commitments for decades in the future.  Neither can the state or future tax payers – change is unavoidable.    

What to do?

It seems to me that the real issue here is that our occupational pension infra-structure – both private and public is broken.

The government is introducing auto enrolment so that everyone will have a modest occupational pension.  This will help a little with the many who are not in any pension scheme at all.

However, it is very modest provision.  In the second half of the 20^th century companies fulfilled a social welfare function providing generous pensions – using tax advantages to provide deferred salary in effect.

With jobs for life long gone and guaranteed final salary schemes for life long gone, companies don’t do social welfare anymore – nor can we really count on them to do so.  Unfortunately, many employers have been replacing old generous schemes with much less generous ‘money-purchase’ schemes with no guarantees and all the investment risk is with the employee.  The new auto enrolment provisions, while welcome for some, just accelerates this levelling down affect.

I’m told both the USA and Australia have been much more effective than the British at replacing old unsustainable pension schemes with new money purchase provision.

I think the public sector unions have a real opportunity here.  They need to be constructive.  Accept the old pensions are unsustainable and come up with some good alternatives.  If they are sustainable and something new that provides decent pensions takes its place, market forces in the labour market could lead the way to improvements in the private sector too.

We all need to save more and we all need something that is more sustainable!   

The Four Freedoms of liberalism

Tonight I just wanted to record some important words that I feel need spoken again. 

In January 1941 America's greatest president, Franklin Roosevelt, delivered his State of the Union address to Congress.  It was to be one of the great speeches and one of the most important expositions of political liberalism.  

It is known as The Four Freedoms Speech.

"...The basic things expected by our people of their political and economic systems are simple. They are:

Equality of opportunity for youth and for others.

Jobs for those who can work.

Security for those who need it.

The ending of special privilege for the few.

The preservation of civil liberties for all.

The enjoyment -- The enjoyment of the fruits of scientific progress in a wider and constantly rising standard of living.

These are the simple, the basic things that must never be lost sight of in the turmoil and unbelievable complexity of our modern world. The inner and abiding strength of our economic and political systems is dependent upon the degree to which they fulfill these expectations.

Many subjects connected with our social economy call for immediate improvement. As examples:

We should bring more citizens under the coverage of old-age pensions and unemployment insurance.

We should widen the opportunities for adequate medical care.

We should plan a better system by which persons deserving or needing gainful employment may obtain it.

I have called for personal sacrifice, and I am assured of the willingness of almost all Americans to respond to that call. A part of the sacrifice means the payment of more money in taxes. In my budget message I will recommend that a greater portion of this great defense program be paid for from taxation than we are paying for today. No person should try, or be allowed to get rich out of the program, and the principle of tax payments in accordance with ability to pay should be constantly before our eyes to guide our legislation.

If the Congress maintains these principles the voters, putting patriotism ahead of pocketbooks, will give you their applause.

In the future days, which we seek to make secure, we look forward to a world founded upon four essential human freedoms.

The first is freedom of speech and expression -- everywhere in the world.

The second is freedom of every person to worship God in his own way -- everywhere in the world.

The third is freedom from want, which, translated into world terms, means economic understandings which will secure to every nation a healthy peacetime life for its inhabitants -- everywhere in the world.

The fourth is freedom from fear, which, translated into world terms, means a world-wide reduction of armaments to such a point and in such a thorough fashion that no nation will be in a position to commit an act of physical aggression against any neighbor -- anywhere in the world.

That is no vision of a distant millennium. It is a definite basis for a kind of world attainable in our own time and generation. That kind of world is the very antithesis of the so-called “new order” of tyranny which the dictators seek to create with the crash of a bomb.

To that new order we oppose the greater conception -- the moral order. A good society is able to face schemes of world domination and foreign revolutions alike without fear.

Since the beginning of our American history we have been engaged in change, in a perpetual, peaceful revolution, a revolution which goes on steadily, quietly, adjusting itself to changing conditions without the concentration camp or the quicklime in the ditch. The world order which we seek is the cooperation of free countries, working together in a friendly, civilized society.

This nation has placed its destiny in the hands and heads and hearts of its millions of free men and women, and its faith in freedom under the guidance of God. Freedom means the supremacy of human rights everywhere. Our support goes to those who struggle to gain those rights and keep them. Our strength is our unity of purpose.

To that high concept there can be no end save victory."

If you wish to read the speech in its entirety is is here.

Fourteen thoughts

Some thoughts on British politics three years into the current government.

1. The Conservative Party has never understood nor accepted coalition.

2. The Conservatives have never really accepted they didn't win the election in 2010.

3. The Conservatives historically have always eaten themselves every generation or so over tariff reform / Europe.

4. The Conservative Party are split between two generations and split over Europe.

5. The Conservatives head for the next election split from head to foot, somewhat directionless and their idealistic drive for public sector cuts and excessive austerity (too deep, too quick and no plan B) discredited.

6. The Labour Party are struggling to find their soul and with an uncharismatic leader.

7. The Labour Party are caught between the economic policy they know they would have to deliver and what they would like to deliver.

8 The SNP are caught with a somewhat shallow policy and a tendency to grandstand for the purposes of delivering independence.

9 The SNP's proposition of low taxes plus increased social justice is wearing thin and intellectually dishonest.

10 The SNP may still have the political prowess to take advantage of the situation but their credibility is diminishing.

11. This vacuum of political disappointment in times of global financial crisis may yet help the LibDems.

12 But the LibDem brand is damaged and Clegg may lack the charisma or political nouce to take advantage. These are both his challenges and his opportunities.

13 Into this vacuum floods UKIP but what is their point? Their solutions are shallow, ill formed, populist, mean and stand up to little scrutiny.

14 So, there is all to play for - we live in interesting times!

Why an EU Ref makes a Yes Indyref vote even less likely

I love polls.  And I love the study of psephology - try saying that just after you have had your wisdom teeth out!  Most of all I love the detail revealed in the full tables of data behind the polls - the trends, the regional variations and the balance across age groups.

It is with this interest that I read the latest Panelbase Poll on Scotland and Scottish Independence.  It shows the following:

44% No, 36% Yes, 20% Don't know. (sample 1004, survey May 10-16)

Interestingly IPSOS Mori showed:

59 % No, 31% Yes, 10% Don't know (sample 1001, survey April 29- May 5)

The first showed a small drop in the No vote, the second showed a drop in the Yes vote.

Hmmmm - a little contradictory in terms of how big the No vote is and how many undecideds there are.  We shall see how other polls measure this and how the trends go.

My own view is this; the Yes camp has been stuck on around a third for a while and this matches pretty much the level of support Independence has had in Scotland since the 1970s give or take a couple of blips around devolution being introduced, Alex Salmond winning a majority in Holyrood and the introduction of the poll tax over 20 years ago.

Yes seem to be losing.  The Heather has failed to catch light.  And while millions moved in the streets of Barcelona, the Catalan capital, for their national movement, Scotland's just about filled the Ross Bandstand in Princes Street Gardens.

Yes seem increasingly on the backfoot under close scrutiny on the currency and several aspects of the consequences for pensions - both public sector and private.  Fissures have been appearing between the SNP on one hand who want to keep the Pound, the Queen and the Bank of England as well as shared financial regulation (funny independence that - may as well keep some political union if that's the game!); and on the other hand, the hard left who support a more recognisable independence complete with Scotland's own currency, a republic and withdrawal from NATO.

Other aspects of the movement's vision appeared to be wearing thin.  Strike out for freedom and let 1,000 flowers to bloom.  We could be a Nordic paradise free from Westminster austerity and injustice.

Is this from the SNP whose tax cutting agenda (Community Charge freeze, Corporation Tax, Air Passenger Duty and VAT) promises to deliver a social justice nirvana at the same time?  Or is it with a hard left agenda that presumably will bring with it high unemployment, accelerating economic decline and nothing but social justice disappointments?

It doesn't really add up does it?

But one thing could change the direction of this debate - Europe.

As the Conservatives set about trying to destroy themselves once more over Europe, an In/Out referendum for Britain in Europe looms large and exiting the EU a real possibility.  Note what today's Panelbase poll says:

If the UK is going to leave he EU the vote on Scottish Independence becomes:

44% No, 44% Yes, 12% undecided.  A dead heat!

The EU shenanigans may be about to open the field up again for the Scottish Independence Referendum.

I have just one set of thoughts I wanted to put down about this today.  That this is the electorate's gut reaction of the last few days as this issue has exploded onto the scene once more.  It is not yet a considered view in the light of analysis and discussion of the pros and cons of the various options.  Simplistically I believe the various options line up like this for a would be independent Scotland:

Scotland in EU, Rest of UK in EU
As you were, the Independence debate is framed as it was.

Scotland in EU, Rest of UK out of EU
Nightmare.  This is a nightmare for the single market that we hitherto shared with England.  The currency, financial regulation, and the operation of all sorts of cross border institutions become an even bigger problem. And what of Schengen and border controls in this sceanario. Nightmare.

Scotland out of EU, Rest of UK out of EU
Even bigger nightmare.  Not in the UK, not in the EU, small and on the fringes of Europe, and dealing with tariffs and a regulatory environment from the outside.

It actually strikes me that if the rest of the UK leaves Europe, which I think it would be mad to do, Scotland may well be better remaining part of that UK.

Another alternative may be to share a regulatory and monetary environment with the rest of the UK - both outside the EU, but that is not really independence is it.  Again, we might as well have a democratic political say in such a union if that is to be the case.

(And yes I know you could have Scotland out of Europe and the rest of the UK in but I think that is unlikely and if it were to come to pass I don't see that scenario as being too clever either).

Which all goes to show that as we consider what all this means, I think uncertainty over Europe actually makes a Yes vote for Scottish Independence even more unlikely!!

These are my initial thoughts.  I await developments and further analysis with interest.  And more polling too!       

  

The anti-social union

So Scotland, which way shall we go?  Straight ahead carrying on much as we are now, or off one way to independence or another to constitutional change but within the UK?  Its been argued that this is the political choice, but whatever happens a social union exists amongst the people of these islands and that will not change.  I wanted to write my thoughts on the idea of social union and how I believe Independence is in fact a process of separation that would change everything - including our ideas of social union.

Scottish nationalists will often argue that they are not separatists, rather they believe in Scotland having political independence with social ties remaining intact within a British social union.  I have heard this while comparing being Scandinavian with being from the British Isles.

This is a clever conceit and one that deserves serious consideration.  It is all the more clever because it is impossible to prove or disprove.  In that sense I need to go with my gut here.  However, I think it is important to test and challenge this argument because it is an all too easy one to make and ultimately, I believe, a false proposition.

The reason I think it is a false proposition is this.  If Scotland were to separate from the United Kingdom there is no Britain anymore and everything changes.  Yes we have a shared language, yes we have shared geography and yes we have a largely shared culture.  But it would be rather like a divorced couple.  The old family has gone, the old household is no more.  They no longer share the same life.  Sure there are ties, shared memories, shared children, shared friends even, but they are no longer married and they live separate lives.  If Scotland becomes independent, Britain will have ceased to be and very quickly no one in the south will be that interested anymore - it is no longer their business and we are no longer theirs. 

To suggest that life after independence is just the same except for eliminating the possibility of a Tory government is disingenuous and wrong.

Michael Ignatieff, the commentator and ex Canadian politician, drawing on Quebec and the Canadian experience, has pointed out that everything will change whatever the result.  Alex Salmond says we will have the Queen, the Pound and the BBC; Unionists say nothing will change because the nationalists will lose. Ignatieff thinks both are wrong.  A lot will change and will change quickly.  Pointing to the Quebec experience, Ignatieff says that the rest of Canada no longer have much to say to each other and that is without the step of full independence.

No, we should be in no doubt, if we become independent there will not be a continuing sort of quasi country existing in the form of a social union without the political union.  Britain will have ceased to be.

In fact the idea of a social union (with political autonomy) describes what we have with devolution and what we can have all the more with some form of developed devolution - not with independence.  Call it what you will - Devo Max/Plus, Home Rule or Federalism - developing devolution is the far more likely outcome of the Independence Referendum.  So, I believe we should be concentrating more discussion on that, what form it takes, how it fits within a wider UK settlement and how we get there. 

Given there is far more that binds us than separates us - culturally, linguistically and geographically; and given our separate identity within a United Kingdom of regions and nations, a significantly devolved Scotland within a United Kingdom remains, as it has always done, by far the most natural settlement.  That is how you preserve a social union.  Independence is the anti-social union.   

We come to bury Thatcher not to praise her...

I write on this, Margaret Thatcher's funeral day.

"Friends, Romans, countrymen, lend me your ears.

I come to bury Caesar, not to praise him.

The evil that men do lives after them;

The good is oft interrèd with their bones..."

Julius Caesar  Act 3, Scene 2

So begins Mark Anthony's funeral oration for Julius Caesar.

Tony Benn tells the story that he met Mrs Thatcher at the funeral of Eric Heffer, the veteran left wing MP.  Heffer was a socialist and collectivist and one whose viewpoint Mrs Thatcher strongly opposed.  But, nevertheless, she had come to pay her respects to a political opponent and fellow parliamentarian. 

It is right that political colleagues should gather with family and friends for her funeral.  She was a Prime Minister of our nation and the first woman to hold this office.  Along with The Edwardian Liberals of 1906 and the post war Labour government of 1945, she led one of the three most important administrations in the 20th century. She was a servant of Britain and it is right to honour her in death.  This does not mean I agreed with her.  I fought against her.  Opposition to her politicised me in many ways.  I do not believe I was wrong then and I do not support what she did now.  But it is right to honour her in death.

An economics lecture I attended in the summer of 1984 pretty much nailed an accurate and fair assessment of her administration in my opinion.  It remains remarkably sound in its analysis, even today.  Given by a lecturer whose sympathies were left of centre it was nonetheless a non partisan academic giving a reasoned, objective and evidence based assessment.  He was speaking a year into her second term. The miner's strike was underway, the worst of the recession was behind her, council house sales had been a success and she was just beginning the privatisation sell offs.

He painted a picture of an administration that did a number of things that probably had to be done and that had an idealistic agenda to change the post war consensus to make Britain more fit for economic realities. He showed how, on both counts, Mrs Thatcher was a qualified success.

She came to power in 1979 at the end of a decade where the trades unions seemed incredibly undemocratic and a number of union Barons wielded an inappropriately large amount of power.  This power seemed to be more about applying restrictions that held the economy back or about wielding political power, rather than fighting for workers' rights.  It was also the end of a decade that was extremely hard economically.  We had faced two recessions, rampant inflation and high taxes.

Mrs Thatcher changed this.  High inflation became a thing of the past, taxes were lowered and the unions were tamed.  The number of days lost to strike action reduced dramatically and politically motivated disputes seemed a thing of the past.

However, the great question is how much of this would have happened anyway?

Economic growth during the 1980s was only a little better than its post war average.  Thatcher in fact ditched monetarism (trying to control inflation by controlling the money supply) after a few years as they kept over shooting their targets.  However, there is no doubt that inflation was tamed.  I suggest strongly that we did not need Thatcherism to tame both high inflation and taxation - they would have happened anyway, one way or another.

I think what Mrs Thatcher delivered was an end to the 'Bustkellite' post war political consensus and the idea that there is no such thing as a free lunch - governments may be full of good intentions but services have to be paid for and you cannot pay for anything unless the country is making money from goods and services.

As Stephanie Flanders put it on the BBC, Thatcher made us all powerful as consumers which is actually quite liberating.  Before the powerful were the CBI and Unions.  The coverage of elections in 1979 and 1983 - especially the 79 one are full of interviews with some extremely boring, self important and breathtakingly un-self aware union leaders.  The CBI types were no less of a self-parody.  The framing of politics as unions v bosses was sterile and neither side represented the British people particularly well.  

Mrs Thatcher also wanted to turn us into a property owning, share owning democracy.

She succeeded in making us property owners with most of us owning our own homes after Thatcher.  The Conservative policy of selling off council houses at a discount was enormously popular and empowering for people.  On the negative side the social housing stock was not replenished and we do not have enough of this right up to the present time.

I am not so sure she succeeded in turning us into a share owning democracy.  Many of us owned shares by the end of the 1980s, whereas before this was a preserve of the elite.  However, few people owned anything other than privatisation sell-off shares.

However, in subsequent years more have come to own shares indirectly through personal pension plans, PEPs and then ISA plans, but this has been a qualified success. 

She also lowered tax - especially on the wealthy and companies - and replaced some of this with higher VAT.  Now some of this needed to happen to balance the tax rates and stop them being unnecessarily punitive.  Paradoxically this probably led to an increased tax take and helped business develop.  However, she was a believer in supply side economics and guilty of seeing low tax as an incentive (to the wealthy) and benefits (for the poor) as a disincentive.  Hmmmmmm - no doubt there is a valid point in there but it always felt to me that the wealthy and powerful wrote that one!

The casino economy

The lecture I heard in 1984 pointed out we were creating more of a casino economy than a strong sustainable one.  Subsequent writers have pointed out the same.  I have to say I believe this is a key weakness of Mrs Thatcher's legacy.

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

John Maynard Keynes, "The General Theory of Employment, Interest and Money

Herein lies the criticism.  Monetarism - although it played a part in reducing very high inflation - ultimately failed as it accelerated the decline of manufactured industry and the increase in unemployment.  She created unemployment blackspots which remain blackspots to this day.  She created a drift of jobs to the south and an economy based on service jobs.  The collapse of rust belt industries meant a loss of engineering skills which we could have done with more of in order to create sustainable jobs.

That's not to say she was wrong to liberalise the economy in order to let it adapt.  These policies had many successes.  And, as my lecturer pointed out in the summer of 1984 - still early in the miners’ strike - there would be only one working coal mine left in Scotland by the end of the 1980s.  He was right! 

Similarly, she deregulated financial services.  Big Bang, the Financial Services Act 1986, and liberalising the functions and capabilities of Banks, Building Societies, Insurers and Friendly Societies produced a boom in financial services.  This helped to inject more capital to oil the wheels of the economy.   This contributed to the huge success of Edinburgh and places like Leeds as financial centres - not just London.

Now, the global financial crisis of 2008 cannot be her fault, nor the subsequent prolonged period of chronic low growth we now find ourselves in.  But she sowed the seeds. 

Her economic approach produced no German economic miracle of mostly sustainable, high production, high technology jobs with longevity for the 21^st century.  At times she seemed a little callous running a laissez faire approach to liberalisation and economic natural selection letting rotting fruits wither on the vine.  None of this is easy of course.  They say that if you have a tomato plant spilling all over the place, rather than try to water and feed all of it with finite resources, you are best watering the strong bits thoroughly at the expense of the less viable parts.  That way the whole plant will thrive and the largest and best quality crop will be produced.  Nevertheless, in letting heavy industry die and in accelerating the decline of manufacturing through the mistakes her governments made in the early 1980s, we lost a lot of engineering skills.

There was not enough mix in the economy.  By and large the economic blackspots of the 1980s are still economic blackspots.  We rely too heavily on the service sector, too heavily on financial services and too heavily on the South-East.

Keynes wrote about economic bubbles and too much speculation.  The housing booms created too much economic activity based on remortgage debt.  The approach to shares was rather more about investment returns from a killing on the market, rather than capital investment in productivity.  It was too much about consumption and not enough about investment and reconstruction of our rust belts.

The global financial crisis and subsequent lost decade have been caused by bursting bubbles – first a property one and then a credit one.  Throw in reckless banking policies and a shadow banking system based on speculation - that our ratings agencies and regulators were not equal to - and bang, the economy has faltered on an epoch creating scale!

It is of course complicated to get right.  I am probably still a Keynesian at heart  but you cannot simply spend your way out of a recession – Callaghan recognised this at the end of the 70s.  Mrs Thatcher’s policies of stimulating growth, and of freeing markets and consumerism were important and needed.  But, I think she was altogether too dogmatic – a warrior on a mission.

Thatcherism

So what of Thatcherism itself?  Thatcher’s greatness we are told comes in part because she had her very own ism.  What other Prime Minister can boast that?

  

Nigel Lawson described Thatcherism as “Free markets, financial discipline, firm control over public expenditure, tax-cuts, nationalism, Victorian self-help, privatisation and a dash of populism.”

In truth I don’t think Thatcherism was so great - in fact, if you break it down, it was rather quirky and odd .  It was a curious mixture of the radical and the conservative; of the authoritarian and the liberal.

In many ways I think it was actually the death throes of a generation forged by the second world war.

I well remember her ostentatiously putting a tissue over the rather funky one world design, which had replaced the Union Jack on the tail of a model British Airways jet.  She was a character of contrasts, a politician who delivered for the country and one who also did great harm.

She stood up to excessive and undemocratic union power and to other vested interests.  And let it not be forgotten she stood up to fascist neo-colonialism from an ugly Argentinian regime in the South Atlantic.  But she was also enormously divisive.  At home at times she went to war with her own people – the enemy within.  This was not the greatness of a British Lincoln say, who defeated the divisions that needed defeated then held a hand out to rebuild.   

Yes, I see Thatcher as a qualified success.  She is now owned by the Historians, as someone said today, and they will see the good and the bad in her legacy.

I think by 1979 the writing was already on the wall - for excessive and undemocratic union power - for politically motivated strikes - for high inflation.  However, Thatcher must take credit for her determination, bravery and leadership.  Her single minded nature and clarity of thought made sure things that were often challenging were in fact achieved 

But, I think she also brought unnecessary division - the enemy within and a seeming lack of empathy for those not with her - a warrior who seemed to see things in black and white.

And let us not forget that much of her power came because Labour imploded and was unelectable in this period and the opposition was split between the centre-left Alliance and a confused Labour party.

Personally, I would rather have seen the Alliance break through in 1983 or Thatcher fall during the Westland crisis in 1986.  I think Thatcher had made her contribution by then and we would have been better served to consolidate and build in an altogether more constructive way by the toughness and tenderness of the Liberal and SDP alliance.

What Lincoln said to Manchester

Written this week 150 years ago by Abraham Lincoln to the Lancashire mill workers who, at considerable cost to themselves, supported the Union against the secessionist South (and source of cotton - the lifeblood of their industry).  

"... I know and deeply deplore the sufferings which the working people of Manchester and in all Europe are called to endure in this crisis. It has been often and studiously represented that the attempt to overthrow this Government which was built on the foundation of human rights, and to substitute for it one which should rest exclusively on the basis of slavery, was unlikely to obtain the favour of Europe.

Through the action of disloyal citizens, the working people of Europe have been subjected to a severe trial for the purpose of forcing their sanction to that attempt. Under the circumstances I cannot but regard your decisive utterances on the question as an instance of sublime Christian heroism which has not been surpassed in any age or in any country. It is indeed an energetic and re-inspiring assurance of the inherent truth and of the ultimate and universal triumph of justice, humanity and freedom.

I hail this interchange of sentiments, therefore, as an augury that, whatever else may happen, whatever misfortune may befall your country or my own, the peace and friendship which now exists between the two nations will be, as it shall be my desire to make them, perpetual."

Abraham Lincoln, 19 January 1863

That was quite a speech Dave

Well that was quite a speech Mr Cameron.  I guess it will take a few days for me to fully absorb what I think it all means for the future but some things strike me straight away.

On Twitter I asked whether it was Cameron's '95 Theses on the Reformation of Europe' (with thanks to Archbishop Cramner) or was it purely about Tory electoral prospects?  I think the truth is it is rather more about Tory electoral prospects and outflanking the UKIP.

Interestingly, Lord Ashcroft - the Tory benefactor, pollster and strategist - points out that when they talk about Europe they lose.  Well, we'll see, but I do think their position will unravel somewhat and its still all about the economy stupid!

I think the Conservative's position will unravel because we have no idea exactly what powers Cameron would like to repatriate or the consequences.  There is in some quarters a view that Europe takes over and tells us what to do but only 6.8% of UK primary legislation and 14.1% of secondary legislation has anything to do with implementing EU obligations  - and these are not EU diktats but policy that is agreed to, approved of and signed off by UK officials.

The fact is Euro-scepticism plays to an idea of Europe that "we are with Europe but not of it" to quote Churchill.

One of the really interesting things today was that if you substituted the word Scotland for the words 'Britain' or 'United Kingdom' it could have been Alex Salmond talking.  In fact the Scottish nationalist community has been quite taken with the irony of the whole thing and what Cameron is saying about the pros and cons of holding an EU referendum!  But this should not surprise us because both the Conservatives and SNP are nationalists.

The other question I posed on Twitter was 'what effect will this have on the Scottish independence referendum?'   

That remains to be seen but while there are some huge ironies in hearing David Cameron sound like Alex Salmond, I don't think it changes the fundamentals of the debate very much.  In fact, I believe this makes the case for Scottish independence still weaker.

In 2012 there was much debate about whether an independent Scotland could remain automatically within the EU.  While the process and basis for a separate Scotland becoming a member state are unclear there is little doubt we would take our place.  However, the possibility that you could have an independent Scotland within the EU and England & Wales outside the EU is not a good proposition.  Where would this leave the currency? This would not be a good place for Scotland's main market and trading partner to be, and what of the Schengen agreement on borders?

The fact is that to be a viable proposition Scotland needs to be part of the EU.  While I am a strong supporter of the EU, the rest of the UK does not need the EU as much as an independent Scotland would.  And, as I said, the prospect of our main market being on the different side of the EU's borders is something of a nightmare scenario - and it wouldn't do much for the 'social union' either.

I have argued before that our interests are best served by British unity, collective interests abroad like the EU and decentralisation at home.

The commentator David Torrance said something this morning I thought may yet prove to be quite significant.  He said, "PM's position vis-vis EU is basically devo-max for the UK.  And if that doesn't work , then he wants independence."  Yes, David Cameron is arguing for a looser connection with Europe but to remain inside none the less.  In this I sense the possibility of a changing view in England to the British constitution.  The parallels between the EU debate and the constitutional argument will not be lost on everyone.  The awareness of English nationalism, the value of regional autonomy and how these things can exist within something bigger is growing.  The fact that the Scots seem to be largely opposed to independence but want strong devolution within the UK is also becoming increasingly clear.  All these things add up to the possibility that maybe, just maybe, something that was unthinkable a few years ago could soon be thinkable. That is that people in England may come to accept a federal solution for the UK is a good thing.

This is important because today another poll put support for independence below 30% and the numbers supporting increased devolution much higher.

If independence is voted down in 2014 we can get on and take the devolution settlement further.  We can start to work towards making devolution part of a wider decentralised settlement in the UK.  How this develops is the more important question - not independence!

Meanwhile the European question remains and I fear David Cameron has opened a Pandora's Box.  I'm not at all sure where we are headed but I'm not sure he knows either!  My best guess is we won't hold this referendum for I don't believe the Tories will win the next election.  But, If we do hold a referendum I think we'll vote to stay in - by the skin of our teeth.  I can only hope that the re-engineering of Europe, because that will happen in the next few years whatever course we take, is one that benefits us all.