Plague Year Journal VII: Normality reformed

The question is not whether the pandemic has changed the world – but how closely the new normal will ever resemble the old, writes Victor Hill. In Britain, there is already a strident conversation about how much politics, the economy and social life must change.

Miranda: O brave new world/ That has such people in it! Prospero: Tis new to thee.

– The Tempest (1611), Act V, Scene 1, by William Shakespeare (1564-1616).

The Rolls-Royce that broke down

With every passing week it becomes clearer that the totally calamitous British experience of the Covid-19 pandemic was not just a result of the inadequacy of the Johnson government but also – perhaps more so – due to systemic failures in the fundamental machinery of the British state.

You can and should blame drivers for bad driving; but bad drivers become worse drivers when they drive shoddy, poorly maintained cars. Some of us were brought up with the conceit that the British civil service was a Rolls Royce – when it has performed during this emergency with the élan of a Reliant Robin. The litany of failure is now familiar: dodgy modelling, the decision to cancel testing; the non-availability of protective equipment; the spreading of the virus to care homes thanks to the expulsion of untested bed blockers from hospitals; the tracing app that, after much hype, was binned; and the total failure to control our air borders. And so it goes on. Policy failure was magnified by a failure of governance.

The idea has taken root that Mr Johnson lost control at an early stage in the crisis by not turning up at COBRA meetings. That is itself the product of a managerial mindset which prioritises targets, key performance indicators – and endless meetings. The problem has not been a lack of top-down management, but rather a failure by the agencies of state, not least the National Health Service itself, to respond effectively on the ground. The German healthcare system, which is much more fragmented and decentralised than the NHS, was much more responsive. Germany has suffered just over 9,000 fatalities as compared with Britain’s 44,000[i]. Any future inquiry will have to explain that disparity. (Though I doubt it will.)

Reform of the civil service was already on the Johnson government’s agenda before the pandemic erupted. Mr Johnson’s Chief Adviser, Mr Cummings, who is, according to your point of view, a scheming demon at the heart of government or a genius-level practitioner of game theory, was known to believe that the machinery of government was dysfunctional. Mr Gove, who engaged Mr Cummings as his own adviser while Education Secretary (2010-14), has also spoken openly about the need to re-engineer government in the age of technology.

As a first step in that direction, last weekend Mr Johnson replaced Sir Mark Sedwill with Sir David Frost as his National Security Adviser. (Much to Mrs May’s chagrin: she asserts that this is a political appointment – even though Sir David is a scion of the FCO – strange.) It seems that Sir David will continue in his role of Chief Negotiator with the EU until September. At that point Sir Mark will also step down as Cabinet Secretary – to be replaced by a current or former permanent secretary (i.e. another Sir Humphrey-type). The most striking feature of this move is that a Remainer has been replaced at the heart of government by a Brexiteer. But what is really required is not a reshuffle of the top brass but a change of culture – something much more difficult to achieve.

In one of my previous Plague Year Journal entries I suggested that Public Health England was worse than useless and that it should be abolished. According to the Daily Telegraph (01 July) that is the government’s view now too. If only PHE had stuck to the day job of telling us how fat we are and fingering us as dipsomaniacs, instead of getting involved with viral testing.

And the malfunctioning of the British state doesn’t stop with the civil service. Britain’s woke mainstream media – the smug Peston-Kuenssberg supremacy at the apex – obsessed about testing at the very moment that hospital managers were directing Covid-19-infected elders to relocate to nursing homes where, inevitably, they infected their co-residents. Their raison d’être, it seems, is not to analyse policy but to catch ministers out in a game of Gotcha! Since the BBC relocated to Salford it has become, not more open-minded, but incredibly self-referring.

Diversity is great. But what about cognitive diversity? The BBC, as a poll-tax funded national broadcaster, should ensure that a range of political opinion is represented among its staffers. Instead, they are overwhelmingly Guardianreaders. The veteran broadcaster John Humphrys has written that most of his BBC colleagues had never met anybody who voted Leave four years ago. That was evident in their coverage of Brexit – which has so grievously undermined the BBC’s credibility with the British people.

And during the lockdown, Britain’s tragi-comic police force harassed solo sunbathers while in the inner cities people openly flouted the social distancing regulations. More recently, they have taken it upon themselves to step back from their duty to maintain law and order and to allow rampaging mobs to desecrate national monuments at will. And, apparently, burglary is no longer a priority crime.

Then there is the House of Commons itself. As Douglas Carswell pointed out this week[ii], the House has a large number of members who are intellectually and professionally incompetent. Perhaps it was ever thus when white, male, public school-educated landowners ruled the roost. But in a technologically accelerating world with complex, intricate problems, analytical skills are most in demand – and they are lacking. (There is more specialist expertise in the House of Lords – but its membership is overwhelmingly left-of-centre and Remain-inclined.)

The coincidence of Brexit, a majority Conservative government (for now – some new Tory MPs are thought to be unsteady), the Covid-19 pandemic and an economic and fiscal crisis makes for a heady cocktail. The entire premiership of Mrs May was undermined by the determination of the highest level of the civil service to thwart Brexit. That was partly because they had boxed themseleves into a European mindset; and partly because they had become addicted to the power that EU legislation gave them to stifle ministerial initiatives.

The focus of reform has moved from constitutional to institutional reform – but the British state has a pitiful record here. Michael (Lord) Heseltine in his 1980s heyday was calling for elected mayors in all major cities. In 2020 we have just 19 elected mayors in England and Wales and there are none in Scotland or Northern Ireland. There is huge stasis within the system. In this week’s Spectator the well-connected columnist James Forsyth[iii] quotes an unnamed close ally of Mr Johnson as saying: “The machine is dead; let us build a new machine”. It is time to tow the etiolated Rolls-Royce to the scrapyard.

Build, build, build: Mr Johnson’s New Deal

Mr Johnson has a new role model: FDR – Franklin Delano Roosevelt, 32nd President of the United States (1933-45). Supposedly, FDR rescued the USA from the Great Depression by a massive programme of public works. Let’s just recall that in 1929 it was barely possible to drive from New York to San Francisco in a Model-T Ford: the road network was minimal. The construction of the Hoover Dam, Route 66, hospitals, schools, and highways employed more than 8.5 million workers. 650,000 miles of highways and roads were constructed and 125,000 public buildings as well as bridges, reservoirs, irrigation systems and parks. But the US economy did not fully recover until WWII. In fact, the 1929 level of automobile production was only exceeded in 1953. Mr Johnson has taken a hostage to fortune here.

The announcements on Wednesday (03 July) represent a colossal spending commitment. In March, Mr Sunak’s first budget – delivered before the full cataclysm of the pandemic and the lockdown erupted – signalled a more Keynesian approach with a high tolerance for increasing debt. I wrote in these pages at the time that the legacy of the Cameron-Osborne years had been unceremoniously junked as government spending was scheduled to exceed 40 percent of GDP next year – even before the lockdown was imposed.

It is not at all clear that Mr Johnson’s building programme will address the problem of Britain’s lagging productivity. As I discussed here in early March, most government-led infrastructure projects run over budget and generate unquantifiable returns on investment.

More hospitals? Surely we want people to stay out of hospital and increasingly to be treated remotely and digitally. Hospitals are vectors of infection – and will always be so. More schools? Great – but the effect of the lockdown will inevitably be a shift to online learning. The model has changed. Why not just give every kid a top-level laptop and subsidise their parents’ 5G internet access if they can’t afford it? That would be relatively inexpensive and could be delivered almost immediately. And neither schools nor hospitals, being social goods, are productive assets.

More roads? I explained this week why the trend to home-working will reduce commuter traffic. More homes? Once again the threat is to tear up planning regulations and to build shoddy, low-density housing developments on the green belt. There will be a huge price to pay for that – not least in terms of CO2 emissions.

And what will be the effect on economic performance of soaring levels of government debt? The conventional wisdom is that, in an age of near-zero interest rates, the cost of borrowing is negligible and therefore governments should borrow to invest. That’s all very well; but once inflation takes hold interest rates will surge and interest costs will crowd out all other expenditure. Even if that doesn’t happen in the medium-term, the Rogoff-Reinhart hypothesis that highly indebted countries have lower growth rates than lowly indebted countries is persuasive – for reasons I shall explore soon.

Are we nearly there yet?

The virus will continue to stalk us for some time to come, and that will stymie the economic recovery. The culture war strikes at the roots of the legitimacy of our political structures. The most socially and culturally homogenous societies – the democracies of East Asia and Eastern Europe – have coped much better with the pandemic than those nations which have experienced large-scale immigration over the last 2-3 decades. Britain seems collectively incapable of managing the tsunami of illegal immigration, which has accelerated of late. (And, by the way, whatever happened to Mr Trump’s wall – which the challenged Mexicans were supposed to pay for?) And Mr Johnson has now invited three million Hong Kongers to come and live here – even though we already have a shortage of housing, and we need such green-field land that we still have to grow food. At least during this pandemic the middle classes did not go hungry: that may not be the case next time.

The incipient economic crisis, with massive unemployment, will cripple government finances for a generation – despite the monetary magic of the priestly caste of central bankers. Austerity (aka fiscal prudence) has now become politically impossible. We are whirling into an almost bottomless pit of debt. When we hit the bottom the splash will unleash either hyperinflation, or a total breakdown of social order. Or both at the same time.

Meanwhile, China looms more menacing by the day: while the USA – the cornerstone of western freedom – looks unstable. The explosion in new cases of Covid-19 in several key US states is a cause for concern. Europe (I mean the EU), after staring into the abyss in April, seems to have pulled through, thanks to Germany’s more sympathetic stance towards debt mutualisation. The single currency will survive – for now – and the Federalist agenda will accelerate.

But what about Britain? I have to admit that I’m not feeling particularly optimistic right now. The real pain is yet to come. I was bullish on residential property last month but I note that house prices are still falling despite the relaxation of the lockdown. Hitherto, one bought the FTSE-100/250 for the dividend yield rather than the prospective capital gain: I fear that both will disappoint in the near-term. I’m still bullish on agricultural land – but so much depends on the new dispensation for farmers, which will not be clear until the end of this year at the earliest.

It’s not so much Are we nearly there yet? More – Where the Hell are we going? My advice for investors of a certain age is – keep shielding.

***

I’ve not yet shared my view of Archbishop Welby with the vicar: that would seem inappropriate on Zoom. Though I think she might agree with me, being a no-nonsense Aussie with sheep-shearing skills who fled the outback to preach the Good News in godless East Anglia. She says we can still take the Eucharist if we want to this Sunday (the first time back to the ancient church since mid-March) – administered with sugar tongs. I’m not sure that I shall partake. And we are not even allowed to sing. Of course, there will be recorded music – no doubt with more technical breakdowns than even The Today Programme…

The village pub re-opens tomorrow. Though I have looked forward to this event for more than 100 days, I’m not sure about the new etiquette there, either. They already know where I live – but is it a high-five, an elbow bump or a Namaste? And if I wear a mask how will I drink my pint?

I suppose I’m not alone in feeling like a ship-wrecked mariner washed up on the shores of an unfamiliar land – a recurring theme in Shakespeare. (What country, friends, is this?[iv]) Maybe that’s why I keep thinking of The Tempest, The Bard’s swansong:

Those are pearls that were his eyes:
Nothing of him that doth fade
But doth suffer a sea-change
Into something rich and strange.

[i] https://www.worldometers.info/coronavirus/ accessed 07:00 hours 03 July 2020.

[ii] Adam Smith Institute webinar, 30 June 2020. Available at: https://www.youtube.com/watch?time_continue=2665&v=cyKRYTojZ8E&feature=emb_logo

[iii] See: https://www.spectator.co.uk/article/mission-impossible-boriss-attempt-to-rewire-the-british-government?utm_medium=email&utm_source=CampaignMonitor_Editorial&utm_campaign=WEEK%20%2020200704%20%20AL+CID_bc5c3edf1fc34b88c35beb29db64ef76

[iv] Twelfth Night (1602), Act I Scene 2.