Friday, 10 September 2010

Scroungers in the bike shed

Ben Chu at the Independent writes about the new Barclays chief, Bob Diamond:

Much attention has centred on his remuneration... In 2007 alone he earned $42m (£27m). And he will soon be earning up to £11.5m a year... What should concern us is less the size of Diamond's bonus than his gargantuan ambition and his minuscule judgement...

Diamond, as head of Barclays' investment banking arm, Barclays Capital, pushed hard for his firm to buy the Dutch bank ABN Amro during the credit bubble. The only reason the deal did not happen is that Barclays was outbid by an even more reckless banker, in the shape of Fred Goodwin of the Royal Bank of Scotland.

Diamond was at it again when the Wall Street firm Lehman Brothers found itself in serious trouble in 2008. The Barclays man was determined that the Wall Street giant would be his. And this, remember, is before Lehman filed for bankruptcy, an event so catastrophic that it sent the global economy into its worst slump since the Great Depression.

Just consider what would have happened if Diamond had got his way on either occasion. The toxic assets of ABN drove the Royal Bank of Scotland to the brink of destruction in 2008. Barclays would have been ruined in exactly the same way if it had secured the "prize" instead. An acquisition of Lehman would have been even more deadly. We now know that the Wall Street bank was already doomed, long before Barclays tried to buy it. A Barclays takeover would have put the British bank at the epicentre of the inevitable global economic meltdown. It was sheer dumb luck that Barclays avoided disaster.
This sort of context makes George Osborne's headline-hogging attack on the tiny subset of 'people who think that it's a lifestyle choice to just sit on out of work benefits' sound staggeringly petty and irrelevant. I wonder, though, whether there's method in the madness of picking on a small and relatively unimportant issue:

Parkinson dramatizes his Law of Triviality with a committee's deliberations on a nuclear power plant, contrasting it to deliberation on a bicycle shed. A nuclear reactor is used because it is so vastly expensive and complicated that an average person cannot understand it, so they assume that those working on it understand it. Even those with strong opinions often withhold them for fear of being shown to be insufficiently informed. On the other hand, everyone understands a bicycle shed (or thinks he or she does), so building one can result in endless discussions because everyone involved wants to add his or her touch and show that they have contributed. While discussing the bikeshed, debate emerges over whether the best choice of roofing is aluminium, asbestos, or galvanized iron, rather than whether the shed is a good idea or not.

In this context, everybody understands, or thinks they understand, why it's unfair that they have to work for what they have, when they think somebody else is getting something for nothing. It seems as easy to understand as a bicycle shed (although it's actually a bit more complicated than that). The world of securitization, credit default swaps, asset ratios and collateralized debt obligations sounds as complex and hard to understand as the inner workings of a nuclear power plant. Fixing the meltdown in the nuclear plant and making sure it doesn't happen again might be the most important thing on the agenda, but it's difficult, and a bike-shed-sized sound-bite about welfare "scroungers" is easy.

A relentless focus on the bike shed-sized issues can be quite useful. The Spending Challenge website has encouraged members of the public to "buy in" to the government's agenda of economic shock therapy and endorsed a few ideas for savings of a million quid here or there, thus creating an illusion of "engagement" and "empowerment", whilst ministers get on with making the big decisions they were always going to make. Pure PR Gold from Dave and Nick's Big Book of Diversionary Tactics.