Memo to Dave

Yet again you are the prisoner of your own promises. The pay of Stephen Hester has become a running sore despite the fact that it is relatively modest by banking standards. It was of course pretty daft to promise to sort out excessive pay without either defining what that meant or putting in place any tools with which to do it. In a capitalist society tools are in any case very limited without forcing companies out of our economy.

It seems the red tops are pushing you towards a corner marked '£1m salary cap' and you need to counter this before the only choice is a damaging u-turn which would harm the UK economy. In the context of solving the immediate problem, we do not have time to create social enterprise banks to compete with the purely commercial ones, although of course in the long run this is the answer. A wholly state or community owned bank could reward very differently and still attract sufficient talent.

In the current situation however you have a very limited set of choices. My favourite would be to peg Hester's pay (and the rest of the Board) to an index of other comparable bank pay, with a mechanism to ratchet the actual rewards based on performance. That would not just be on share price or profit, chasing those is what got Fred into trouble. It must be a range of indicators around customer satisfaction, cash generation and so on. If Hester can turn the bank into a cash cow, feeding money to keep our tax down I don't think his salary would be news any more. It seems to me that at the moment there is no meaningful link, in the eyes of most people, between performance and reward. Restoring that might well get you out of the corner without having to use a bat or compromise capitalism.

Memo to Dave

Rarely can an economic situation have been so complicated. The newspaper scarelines range from "negative GDP growth could signal further recession" from "NHS reform will prevent efficiencies" to "UK debt hits £1trillion". People take this at face value and assume that we are in a real mess. And of course we are, but not for the obvious reasons. There are several factors that are seemingly ignored and these are taking our eye off the ball.

For example, shrinkage in an inflationary economy is much worse than in a stable one - to remain level the economy ought to grow by an amount equivalent to inflation. But GDP is an appalling measure of the national economy and recession is a scary term, which people rightly associate with sometimes desperate personal straits. 'National debt' is government debt. Because of these factors the absolute depth or otherwise of a recession, the wealth or otherwise of the nation and real scale of our problems cannot be measured by GDP or national debt alone. It is as accurate as saying that the NHS cannot reorganise itself and save money at the same time. It might lack the strategic capability to do so, but businesses on the scale of Ford and IBM have managed it, so it is not impossible.

Which brings me to my main point. Nothing at the moment is quite as it seems. The system of capitalism that we have is miles from being fair or sustainable and the supposedly free market is a free-for-all if you have enough capital. The facts and figures that we see published every day are misleading and politics is too deeply tribal to separate essential actions for the nation from essential actions to ensure re-election.

The UK and its population, people and businesses, were too irresponsible in the 'boom' and the truth is that the bust is worse than we imagine. Total indebtedness in the UK is far worse than £1trillion and far worse than just about all of our neighbours. It gets harder to repay debt as income shrinks and that is why recession will not go away. But surely repaying debt, clearing the decks and providing a basis for future investment is a good thing? It is, but it doesn't feel good because of the flawed measures and statistics that we allow to be published. The only alternatives to this debt repayment, or de-leveraging, are to wait for inflation to erode the real value of the debt or to borrow our way into another bubble and hope that this time real earnings emerge. Neither of these are attractive in an age when we face unaffordable pensions and healthcare and a near-wrecked planet hosting an ever more war-like civilisation.

One of the key recommendations of the Unofficial Big Society Green Paper (£12.99 from www.bigsoocietygreenpaper.org) is that we urgently need better measures of debt, wealth and investment. The Green Paper lays out a clear way to measure the right things and create a national balance sheet. It is essential that this includes the total debt of all of us and estimates our assets. When we invest in things, perhaps Crossrail, this can be added to our assets and depreciated as in any business. When we repay debt we can clearly see it happening and can feel good about it.

My own best guess is that the real economy, the parts that most of the population take part in, has shrunk by as much as 10% pa since 2009, but that the net movements in debt and assets have largely offset this. I do not have access to sufficient detail in the numbers to be able to perform these calculations in detail but you might find it very helpful if one of George's team was to do this. At the moment to most people it feels as if we are spiralling downward. We might be. Some real numbers which evidence the scale of the problem that we face and the progress that we are making could be just what is needed to convince business to begin investing again.

Memo to Dave

The Economist this week publishes a special report into what it calls state capitalism: commercial businesses returning profit to the state owner. As usual, the report is well balanced and illuminating. Under the title of the Visible Hand it is also interesting to see a nod to Adam Smith.

The report in particular looks at emerging markets, revealing that the state has the largest stake in the 150 largest companies in China for example. The Big Society Green Paper (available for £11.99 at www.bigsocietygreenpaper.org) makes the point that the UK has too many exit routes for capital, aside from the other problems created by our western version of capitalism. The emerging market version seems increasingly to control the flow of capital, and especially of profit, but this is of course not helpful to innovation and growth.

In the Wealth of Nations however Adam Smith proved that increasing wealth is more important than the speed at which a nation grows. This seems to have been forgotten and Smith is looked upon by modern economists as most of us would look at a mad elderly aunt. The Green Paper contends that his principles have not changed, that there is no such thing as a free market and that keeping profit and finding modern ways to evidence the wealth of the nation will be better for us than a totally 'free' market with capital permanently leaving our shores whenever it chooses.

The current free market is rigged in favour of those with the capital and it is just as bad, just as imperfect as an incarnation of Adam Smith's capitalism, as any state controlled economy. The cronyism and inefficiency is perhaps just better hidden. This all needs an urgent overhaul and social enterprise is the key ingredient in your toolkit. Not co-operatives alone, and certainly not employee owned businesses, but real businesses run by social entrepreneurs for the benefit of the country or a particular community.

Social enterprise is the ideal half-way house between state capitalism and a 'free' market, enabling national wealth to be created and retained. A full plan is in the Green Paper but it would be good if you could spend a moment this week reflecting on the bigger picture. UK Plc had its best years long before the arrival of the free market. We got away with some blatant protectionism and did well ourselves by controlling emerging markets. We are now disinvested, making healthcare and pensions promises that will be unaffordable some time in the next 30 years, and have very little in the way of structures for building permanent national wealth.

There is a way to reverse this and to revitalise and modernise our economy to bring it out of depression and the people with it. A bottom up state market, controlled by social enterprise and perhaps contributing to pensions and healthcare funding, will energise and engage people even without directly giving them shares in it. It will drive innovation and capital and it will do so in that unique social enterprise way - caring, ecologically sound, inclusive, widely distributive. If you are looking for a way to make a lasting mark on Britain you will find it in social enterprise and you might even call it a Big Society. In the Green Paper however it is described as a Big Commercial Society and it would create a completely new and better deal for the people of your country.

Does David Cameron really want a Big Society?

Much has been said lately of co-operatives, mutuals and social enterprises. As long ago as 2004 Rebecca Harding at Delta Research was arguing for a new definition of social enterprise and if anything the waters have become murkier since. If there is a problem in the lack of a definition, and I am in the 'there is a problem' camp, it is that the lack of a definition is holding back the growth of the sector.

That is not the same as saying that we need any new legal forms of enterprise as suggested by Luke Fletcher on the Social Enterprise website (http://www.socialenterpriselive.com/section/features/policy/20120117/social-business-%E2%80%93-the-missing-piece-the-social-economy-puzzle), there are already plenty of ways of creating the right legal forms. It is not types of trading vehicle that are holding back growth but the unidentifiable nature of the underlying enterprise that is the problem.

This manifests itself in two ways. Firstly, it is very difficult to measure the sector, and therefore to judge its overall impact and growth, when its trading vehicles are indistinct from any other. Secondly, it is very difficult for those choosing where to spend their money (state commissioner or individual) to know exactly who they are dealing with. As pure 'show me the money' capitalism finds social enterprise a more serious competitor it can be guaranteed that it will find ways of looking more and more like social enterprise. Whilst I understand all of the arguments about encouraging risk capital by allowing investors to share in the profit of social enterprises, the line needs to be drawn clearly somewhere or it will be possible for anyone to call themselves a social enterprise just because one of their directors bought a Big Issue last week.

This to me is the crux of the problem, and it is especially valid in an age where myriad new social enterprises are being encouraged to bid for state contracts but without any clear structure to support the way that they are to compete. Either the Government has no vision on the subject or its vision is of a huge free for all in which capitalism morphs into whatever it has to look like to retain its share of the business and then runs off with the money as always.

Two things are therefore required, in my opinion. A clear definition of what constitutes a social enterprise and the opportunity (not a requirement) for enterprises which wish to do so, and meet certain criteria, to use a new alternative suffix to Ltd, Plc and LLP. My suggested definition in the Green Paper is "commercial enterprises which trade with defined social goals and which are permanently and beneficially owned by their community" and perhaps they might be designated as SET - social enterprise trust?

On a separate but related subject I am not convinced that mutuals or employee-owned businesses should actually be in this group at all. I struggle to see them a social enterprise, they are just a more homely version of capitalism. Social enterprise should be for the benefit of a wider community and should return a substantial part of its profit to that community in one way or another. I would not rule out employee or investor ownership of a part of such enterprises but it must be controlled and they must be kept away from the main stock exchanges and vulture capitalists by means of their own grouping within the corporate sector. There is a danger that because capitalism has gone to such an extreme we now embrace anything that isn't purely capitalist as a social enterprise. That would be equally wrong and may well let 'free for all' capitalism back in the door to ensure that social enterprise never gets to any useful scale or even dies.

The suggested change would therefore achieve two things: it would provide a stronger platform for investment in the sector, even for partnerships with commercial firms, and it would enable to sector to be measured, rewarded (perhaps through tax or other incentives) and protected. The Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org) goes further and suggests that many of the public sector spin outs should join an entirely new sector which remains in state ownership, but that is too big a diversion for now, we must first clear the fog.

Not long ago we had Lansley and Cameron giving different definitions of what constitutes social enterprise and now we have a push for co-operatives. Although this is welcome I see it as a further blurring of the lines between pure capitalism and social enterprise which can only be to the benefit of the former. Something clearly needs to be done or the cynic in me will have to conclude that Cameron is in fact a double agent - trying to appear #socent friendly whilst playing divide and rule with the sector. In that case the Big Society will have been nothing other than a tool to persuade the poor to help themselves whilst keeping any popular movement toward social enterprise (and its attendant gradual redistribution of wealth) under full central control.

Memo to Dave

The Health and Social Care Bill is gathering more opponents as people get closer to its full implications, but should you be worried? Is it the case that most of the opposition is selfish, people protecting self and empire? Well, it possibly is, although that is not to disrespect the genuine care that most of them hold for the NHS. The public understand that care for their vocation and that is why you need to look carefully at strategy in the face of this mounting opposition. Whatever its cause the opposition will be spun in the name of protecting the service and you will be cast as the villain.

There are some very good things in the Bill, notwithstanding the disappointment that it is not part of a truly radical and ambitious solution like that suggested in the Unofficial Green Paper (www.bigsocietygreenpaper.org). However, there are also some weak points, and allowing, or forcing, the NHS to break into hundreds of social enterprise providers is one thing that seems to have little opposition and yet I see it as one of the most dangerous. Whereas much of the opposition to the bill is around the introduction of competition, my caution is that the social enterprise providers will not be equipped to deal with that competition, being stuck with tupe obligations and inherited services.

I need to be clear that tupe is not a bad thing and reducing terms and conditions to a lowest common denominator with the private sector should be avoided. These social enterprises however look to me to be risking death by a thousand cuts as they lose profitable services to commercial competition and are stuck with the rest, effectively relying on charity to survive. This is a return to the Victorian era and unlike most of the opposition I see that as the  'system' danger within your reforms.

To avoid this you have a golden opportunity to think big in a low risk way. A complete overhaul of all pensions and healthcare systems, including the way that they are funded, would create greater fairness, reduce the burden on the state of all pensions over the medium term and level the playing field in terms of competition in the short term. There is much more detail on this in the Green Paper but a return to a system where many depend on charitable providers for their care must be avoided at all costs. Equality has underpinned the NHS since inception and must continue. Giving the juiciest parts of it to private providers will simply unpick the rest. As demographic pressures and the necessity of funding from current day tax receipts combine to render it unaffordable, so the social enterprise providers will be the ones without funding to care for their patients in their marginalised and expensive rump of services.

I do accept that competition is needed but you must consider how to balance best value with the long term future of the service and those working in it. Creating a level playing field for competition, and creating a nationally-underwritten framework for health and pensions funding, would do two hugely important things. It would ensure that when competition is introduced, the existing providers have a fair chance; and it would also reassure those nervous about the new commissioning arrangements that sufficient funding will be in place for the foreseeable future. It is therefore possible to save the NHS Bill without touching it at all. It is largely not the Bill that is wrong and if you analyse the opposition you can see that. It is the supporting structure, the methods of encouraging competition and the move away from decent pensions and pay that are causing the obstruction, and these can and should be dealt with outside the Bill.

Gareth

Memo to Nick

Dear Nick

Your recent comments about a John Lewis economy set me thinking. Thinking that you should stop thinking. Of all the harebrained wannabe vote-catchers this takes the biscuit. It will not endear you to voters and it certainly won't win any friends in business. Most importantly it won't fix the economy either.

Despite your ill-researched comment (JLP is a trust, the staff do not own shares), there is evidence that employees with a shareholding in their employer are actually more productive, rather than being 'as good' as you allege. That said, the motivators of those employees are unlikely to be purely financial, and you would need to analyse why they joined the firms and industries that they did alongside what it is that motivates them to over-perform. It is daft and simplistic to assume that giving employees a share in any firm will create anything other than additional paperwork for the employer. Without any other regulation it is also likely that the employer will reduce salaries to allow for any dividend which may be payable.

Overall then this is unworkable and pointless, just an attempt to put a Liberal flag in a corner of the Big Society. That said, it is a laudable aim, in certain circumstances. Capturing the benefit of a more motivated workforce and population is a big theme of the Unofficial Big Society Green Paper, which I am sure, from your comments, you haven't read. You can see more at www.bigsocietygreenpaper.org

In essence there is a way to create the benefits of employee share ownership, widely and deeply across society, without forcing companies to give up shares. Giving people shares, or policies, in a national insurance and pensions fund is one of the proposals in the Green Paper and whilst this fund could own shares in state and social enterprises, it could also hold funds on behalf of, and provide benefits for, the entire population. This would be a widely spread fund reducing the risk to individuals from a corporate insolvency but it would provide the same direct correlation between their efforts and their rewards that you seek from direct share ownership. In that way it would enshrine big society ideals whilst solving the inherent unfairness of the current system.

That has to be a plan worthy of consideration? If so, please let's have a think about it before we announce it.

Best

Gareth

Memo to Treasury

Steve Richards' excellent R4  David Cameron documentary - on iPlayer at http://www.bbc.co.uk/iplayer/episode/b01946pr/David_Camerons_Big_Idea_Episode_1/ - began to explore the internal blocks in government to the development of the Big Society. It struck me just how little the Treasury had put into the concept, both in terms of support and ideas. On reflection this is partly due to the lack of formal policy behind the concept, but it also suggests that the Treasury could be more pro-active in devising ways to support one of the PM's flagship pledges.

In the Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org) I have tried to be as inventive as possible in examining the potential for a truly big Big Society to take on a life of its own. I struggle to see the point of thousands of independent social enterprises, especially in the NHS, where it seems to be more of a backward step to a network of charitable foundations. I do however see the point of social enterprise and can also see that it has the power to energise and engage the wider population, something the Big Society is missing.

I would strongly suggest therefore that you look at ways of using social enterprise to build solid foundations for the Big Society. The Green Paper suggests a complete overhaul of taxation, pensions, health & social care and Government, resulting in an immediate return to a small government accompanied by a much fairer system which will over time support a gentle redistribution of wealth. In the process the Green Paper demonstrates that there are ways of shoring up the banks without Quantitative Easing, and ways of delivering QE which do not alienate your voters by appearing to favour the bankers. Finally, the Green Paper shows that with enhanced and more modern accounting, the budget deficit can be eradicated over the life of this parliament and it suggests better methods for measuring national wealth to evidence the success of these changes.

All in all, it is an excellent time for the Treasury to do some high level scoping of the ways that dramatic change can be used to strengthen our position and in the process build that elusive and truly big Big Society. Mr Cameron will be very grateful, and so will we. You might even get to do another term of government if you get this right.

Memo to Dave

I was surprised by your recent careless use of a Tourettes comparison, but am more surprised that you seem to be suffering from a new and unique strain yourself. Tourettes Policylalia (TP) is a seemingly incurable condition in which you respond to public opinion by spontaneously blurting out ill-considered and unworkable policies to make it look as if you are doing something.

The latest TP driven outburst is around executive pay. You promise shareholders a vote and yet they already have one of a sort. If they do not like the decisions of their company they can sell their shares. Capitalism provides the perfect mechanism to regulate executive pay but the 99% do not use it, and, to the extent that their money is controlled by fund managers etc, cannot use it. Giving shareholders a vote will mostly not affect the man in the street - he will not own enough shares to make a difference. Those with most of the votes, fund managers, hedgies etc., will mostly be unaffected themselves. Not exactly a win win is it?

The Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org) makes a suggestion which will provide a meaningful alternative without the need to try and take on core components of capitalism with spur of the moment legislation. Even if you decide to ignore the logical social enterprise way forward surely a better plan would be to legislate to relate executive pay to performance, or to simply tax 'windfall' earnings that do not relate to corporate earnings in a punitive way. I am not for a minute advocating either of those, but what you are promising will make absolutely no difference whatsoever.

If you really want your actions to have an effect they need to be much cleverer. You need to work with capitalism, not against it. By that I mean if you legislate it will find a way around it. To work with it you need to understand that at the moment capitalism is failing the 99% because of the way it is controlled. Those with the huge pay are often in league with others in the same position and have a monopoly over the 'who gets what' decisions. If you want to help capitalism to help itself you need to find a mechanism for penalising those companies who do not conform to your idea of reasonable pay. A penalty that adversely affects their earnings, their share price or their ability to compete for government contracts are the kind of things that I am thinking of.

Finally, actually finding out what each executive earns is not that easy. You could make a start on tackling excessive pay, if you really believe it needs tackling, by ensuring that all pay is declared at the point of award, not through annual accounts long after it has been spent and in a way that often seeks to hide the real recipient. A 'name and shame' policy might be as effective as any legislation.

Happy New Year

Hi Dave

I have read your New Year message and am, well, not convinced. Not that it was any worse than any of the others - you could have all got them at the same shop. I didn't expect any stunning new policies to have been prompted by the jokes from your Christmas crackers but I thought you might acknowledge that something new is needed. Or even that we would review our progress so far and do anything new that looked as if it could deliver more than the current policy set.

Unfortunately, the message from you seems to be to keep faith, to enjoy the Olympics and footie and try to forget that we are poor. If the rest of the world comes to visit we might be able to earn enough money from them to keep the wolf from the door for another year or two.

That's a long shot and will see you out of government if not in the next 12 months then at the end of the coalition, guaranteed. People are bored. They know that capitalism has gone to too with its 'free' market and that government and capitalism between them are squeezing the substantial, tax-paying, population until it is entirely disillusioned with politicians and big business, of all colours and types. This is the way to disaster. Not just for the coalition but for the whole country.

The Big Society, and its commercial twin social enterprise, are not going to singlehandedly drag us out of the mire without some help from you. The Big Society must equal Little Government. The stunning rise in overall taxation over the past 15 years has been largely to drive ever more state spending, much of which is with foreign companies. No other country willingly hands over as much of its turnover and therefore profit as we do. That is why we are shrinking relative to the rest of the world.

I am sorry to harp on about it but the Unofficial Big Society Green Paper took a long hard high level look at our strategic direction and found it flawed. We need more investment, we need a proper national balance sheet, and we need proper national insurance and pension arrangements which are affordable and fair. Creating these, and funding them by the dismantling of the many machines and layers of government, is what will solve our problems.

If you have not done already please read the Green Paper (www.bigsocietygreenpaper.org). I sent you one in early December. It shows how social enterprise, in a new and strategically constructed form, can help to solve all of our problems. Done in the right way, and genuinely for the benefit of the largely silent, tax-paying majority who fund this country, it will energise and engage the people far more than any sporting success or any temporary bubble of income which we gained by spending billions on hosting sports events. It will cure our budget deficit and solve the pensions and healthcare funding crisis.

If you seize the moment to offer people a New Deal as in the Green Paper you will ensure that the feelgood factor of the summer is not transient and you will give the investment in those events a clear cut opportunity to provide a greater legacy than prettying up parts of the East End. A true legacy which enhances national wealth and builds a big society for generations to come. One which tips the poison out of the chalice that we are about to hand to our children, and affords the opportunity to refill it with clean, healthy water.

So please, for 2012, give social enterprise a real chance at capitalism's top table, re-take control of our spending and strategically create a real legacy based around growing national wealth and a truly big Big Society. One in which we all understand our role and the scale of the opportunity.

Happy New Year!

Gareth