Memo to the BMA

The headlines read: 'Doctors to ballot for pensions strike action'.

As with local authority and NHS or even Civil Service pensions, there is no way the country can sustain a scheme which does not take enough in contributions to meet the cost of the benefits. That said, current contributions are meeting the cost of those already retired, and are not in any way related to the cost of providing benefits to the contributor. That is what is wrong with the current system and arguing over who pays what today is fiddling while Rome burns.

I support the BMA'S approach to the Government's NHS reforms but on this you are out of step. The government has made an unreasonable set of proposals to try and prop up the system for a few more more years and you have tried to persuade them to water it down. This is another way of saying 'subsidise doctors pensions'.

None of this should be up for discussion. There should be no subsidy of anyone's pensions, and ideally everyone would have a good enough pension that the state pension would be nothing more than a safety net. This would save a fortune and help to rebalance the books of our country. It is one of the key recommendations of the Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org)

It would be very good therefore if the BMA, and any other similarly-threatened bodies, could alter their opposition to changes to a more strategic stance. Let's not have a stand off over who chips in how much to the black hole, let's have an open discussion about how we ring-fence and the fund that black hole, and what better system we create going forwards. That would be something worth striking over and in that it would improve pensions for everyone it would gain widespread popular support. It could also galvanise a group of similar representative bodies and unions which might just be enough to get Dave to take notice. I am happy to help with the detail if you wish.

Memo to Dave

The City of London and assorted cronies are now about to evict Occupy LSX. I am not as wild about the OLSX movement's choice of location as some but I follow David Allen Green (http://www.newstatesman.com/blogs/david-allen-green/2012/02/city-cathedral-camp-occupy) in his thoughts that they have performed a valuable service in exposing the fragility of both capitalism and law.

The laws and legal argument that has been used for the eviction are tenuous to say the least, and as always one ends with the suspicion that the outcome was inevitable and the argument irrelevant. Chasing Occupy LSX from St Paul's will not end their movement however, nor will it make capitalism any stronger or better. The Occupy movement is just one of a growing number of voices who point out that capitalism has gone too far, has been too successful, and now drives capital too quickly to too few participants. Whilst Occupy have been peaceful, unlike last year's riots, they are both singing different verses of the same hymn. Discontent is rising, too few of us are paying in to the system and in our old age we will feel even more cheated as there will be less to take out.

The Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org) suggested ways to get ahead of the curve on this and deliver a fair and sustainable society for all of us. The alternative is more occupations, more riots and more discontent generally. As more and more people see less point in contributing to society, whether through taxation or practical help, the burden on those who are trying to save it rises inexorably. The rapid decline and then death of national and even continental civilisations historically comes very quickly after they peak. Unless you take bold action it is quite possible that we will peak in the next 10-25 years, taking a 1000 year view. Please do not think of the removal of Occupy as a victory, think of it as an opportunity to do the right thing without overtly giving in to them and before the next, possibly louder, wave of discontent breaks on our shores.

Memo to Al Gore

There is a lot of sense in proposals that seek to encourage long term investment and share ownership, as in your latest crusade: http://www.economist.com/blogs/schumpeter/2012/02/sustainable-capitalism?fsrc=scn%2Ftw%2Fte%2Fbl%2Fbloodgoreandcapitalism This is a potentially useful tool in moderating the worst excesses of capitalism, but I sense that it will be of only temporary use. That is for two reasons. Firstly, capitalism has a history of reinventing itself. It can move jurisdiction if need me to avoid rules that it does not like and it can punish those that try to do the right thing by taking its capital elsewhere.

For these reasons we would need to exercise great caution in trying to introduce any type of ownership control. In the Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org) it is suggested that what is needed is not control to slow capitalism but social and community competition to make it try harder, and to give it an imperative to willingly submit to rules such as those in your manifesto. I think we agree on many things but essentially our approaches are very different. I have no confidence that capitalism can be controlled by law or re-trained by coercion. My instinct is that the only thing that will change it is a pure commercial imperative. Do this to compete or lose the battle is the thrust of my approach. It is a 'ground up' system which restores flows of capital across society and deliberately leaves capitalism to work out its response, rather than any type of legislative attack on the capitalist system.

This I think has a much better chance of success and a much greater potential to establish a truly sustainable economy, which is fair to all participants.

Memo to Andrew Lansley - How to save the Health Bill without changing it

The response to mounting opposition to the NHS Bill is not yet meeting the required standard. The concerns are far deeper than either political manoeuvring or self-preservation by empire-builders, although there are obviously elements of both. Before doing anything further if you stop and analyse the resistance you will find a common thread. It is that no-one understands how the reforms will actually get the NHS to a better place, and it is therefore causing fear rather than excitement. In effect it appears to be the fiddling while Rome burns. I have spoken to several GPs involved in new clinical commissioning groups who can see the logic in some of the arrangements but fear the funding will not support the needs of their patients and alongside that existing NHS commissioners are saying that the changes will do nothing to re-position the service to cope in 10 or more years time, that will need hard cash.

The Unofficial Big Society Green Paper (www.bigsocietygreenpaper.org) has a full chapter on the NHS because of it's importance to us and your reforms may well drive efficiency but they have two glaring omissions. Firstly, they do not show how they are compatible with the future financial strains which demographics alone will place on healthcare and the funding of it. This leads GPs especially to be wary of being the gatekeepers of insufficient funding and as a result being the ones to tell patients that they will be left to die. Secondly, the reforms fail to demonstrate how they will protect the NHS against lowest common denominator services which will result from a totally free any willing provider system.

What is needed therefore is a sub-bill which enshrines the role of community-led social enterprise in the NHS and does so within a framework which ensures open competition whilst supporting the funding model through reinvestment of profit. Secondly, you need to address the whole system that funds health, pensions and social care from current day taxation. This system frightens the life out of me and will break at some point, leaving us like Greece. No amount of reform or doing more for less can save a system in which twice as many people need help as those paying for it and that is where we are headed.

The Green Paper talks at length about this issue but in a nutshell you can save the bill by two relatively simple actions, which it will be easy and beneficial for the coalition to support:

1. Commit to a system of competition in which all outputs are measured, not just the financial, and in which the state seeks a return of profit from providers. This will ensure that social enterprise becomes the main delivery vehicle for our healthcare and avoid the danger of back door privatisation.

2. Commit to a new system of funding, on a whole of life basis, which will guarantee that a standard set of treatments and social/pension benefits are available nationally to all those eligible. 

This will not only help financially, it will help voters to believe in your full support for the NHS and also help those inside it to believe that the reforms will not simply be used to squeeze the NHS to save cash. These are not nice to have bolt ons, they will save your Bill. They will underpin the modernisation of the NHS as well as transform the financial position of the country.

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.