PLAN B
ALTERNATIVE SPEECH TO THE G20
by Gordon Brown
Firstly I'd like to welcome all our honourable colleagues to the London Summit of the Group of Twenty nations Leaders. We live in extraordinary times, and we are here with an extraordinary and crucial remit, to agree measures upon which a worldwide economic recovery and sustainable world prosperity can be founded.
It is not my job to lecture you on how to solve the banking crisis. We all realise by now that the fire was stoked by excess liquidity, caused by low interest rates - cheap money and by irresponsible lending. As long as property prices increased faster than the interest on the loan, and as long as we could find more and more people willing to take on massive unaffordable debt and live beyond their means to sustain confidence in the system, we were fine. Everyone could have free houses and free money. We all knew what was happening, and we all profited from it, but the system stopped us from doing the right thing. When politics and profit come before principles and people, as history consistently demonstrates, the resulting debt-fuelled consumption always ends in tears.
It is all very well knowing what the problems are and Im sure other nations have similar challenges to Britain, because we proudly exported them to you and the list is growing. A banking crisis. Lack of liquidity. Massive debt burdens. Excessive public spending. Unemployment. Poor business practice. Poor leadership. Political interests. Lowering of moral standards. Lack of personal responsibility. Unaccountability. The breakdown of the family unit. Putting profit before the environment. The legacy of debt and disorder we will leave to our children, and their children too, if we fail in our duty here today.
Fixing all those problems will not be easy, but of course nothing worthwhile was ever easy, and the tough task starts here today. I cannot stand here and tell anyone how to run their country, but I can tell you what we will be doing in Britain, in the hope that you might do whatever your country can to help, and even in the hope that you can help us to improve further on our plan.
I think you all know what our Recovery Plan involves, but it may be useful to have a precis.
Our first action was to rescue Northern Rock, who had become over-exposed to an inflated market and opaque financial products they knew little about. Our action may have saved a lot of ordinary savers from losing their money. The resulting nationalisation was expensive, but we dont really know what the long-term cost might be, as our priority was to sustain confidence in the wider banking system. We thought that maintaining the market was worthwhile at virtually any cost, and we may have been mistaken.
Our next action was to reduce VAT, at some cost to the Treasury and little immediate benefit to the consumer and cashflow, but we have to remember what VAT really is. It is a tax on the value that people and their businesses add to a product or service, through their labour. Reducing that tax should have a long term benefit to the profitability of businesses, especially those operating on small margins in tough times, and I still believe that is a good thing. I now hope to be able to retain it long-term, within a balanced budget.
Next we had to bail out many of our High Street Banks. Our confidence in being able to maintain trust in the UK banking system was misplaced. It was false confidence. Again we dont really know what the price will be.
In order to inject liquidity and get the financial markets and lending going again, we then tried Quantitative Easing. Printing money. With no other easy options left to us, we considered it a necessary evil. We may have been wrong about that, too, as there has to be a question as to whether it can ever be considered necessary.
Now we are increasing personal tax allowances, which has to be good, but we dont really know yet whether we can afford it.
Alongside these we have reduced interest rates to a level where it is not worthwhile saving, and from which they can only rise. It has left the people that gambled on living well beyond their true means with very welcome additional disposable income to spend, but it has severely hit the incomes of those with savings. The effect is to punish good behaviour and reward the people that have the debt.
As you can see, our way of thinking, and the advice we have taken, is what got us precisely where we are. We need fresh thinking, we need to listen to what the people are telling us - the uncomfortable things that we dont want to hear, but that we know are right - and we need to do what is right, what we must do, rather than what is expedient.
We know the system is the problem, it is broken and must never be resurrected. I didn't invent the system, but it is people that work the system, and in my country I have been at the helm. Our political system effectively prevented us from stopping the rot, with its rewards for poor decision-making and regulation. Of course we can all play the blame game, indeed for some it might be fun. Blame the bankers, blame the beaurocrats, blame the world leaders whose surnames begin with the letter B - but blame wont help solve the problems.
As I say, in Britain I have been at the helm and I take full responsibility. I apologise to the great British people, and I apologise to everyone that has suffered from the global spread of the toxic system. I only hope that you will allow me the privilege of doing my very best to make amends. I have pledged to do whatever it takes to create the employment and the recovery that we need. I have said, ad nauseum perhaps, that we need free markets, but not free of values. But they are just more hollow words, unless you back them with a genuine plan.
So where next with our faltering Recovery Plan? More of the same? Does anyone here think that is the answer to all our problems?
I've travelled the world, Ive sought the best advice, I've listened.
People have told me that no one has the answer.
There is widespread disagreement regarding the future of regulation of markets.
No one could be certain that an agreement to free trade would not descend into protectionism, driven by local interest or necessity.
There are many views on how to treat tax havens and secret bank accounts, though some interesting suggestions were made.
No one could tell me for certain what effect the ongoing support, fiscal stimuli, recapitalisation or quantitative easing will have.
No one knows how bad things will get before they get better, or when that might be.
Thats not good enough. How can I possibly come here and address the greatest world leaders and say, "Listen to me, I have no idea where I am going"?
How can we tell the people that we've agreed to carry on doing what weve been doing, knowing the direction that has taken us? What are we going to do differently?
That is why I have sought the best advice. I humbly ask that you help improve upon it if you can, because we cannot afford to get this wrong.
Please let me start with a clean slate. What is our policy? Well as Miguel de Cervantes said, "Honesty is the best policy2.
So let me be honest. I have listened to the people that I perhaps wouldn't previously have given the time of day to. I've revisited the principles that you have to stick in a box in the cupboard when you become a politician. I've listened to the collective wisdom of the ages. They pose some good questions.
Like, 'Following the advice that you currently take, where will that get you?'
- In the Brown stuff
'Is that where you want to be?'
- No.
'Does doing things your way work?'
- Yes. Well, until recently. No, of course not. It was unsustainable, doomed to failure.
'Do you think you are cleverer than all the wisest men of all time, put together?'
- Well, no.
Not the most comfortable questions, I admit, but honesty is the best policy, so I invited more:
'To quote Corrie Ten Boom, "You are on the road to success if you realise that failure is only a detour." 'Are you willing to admit your mistakes so you can move on?'
- It could be worth trying. It's my fault, and I am sorry. That didn't hurt.
'They say you need a genuine plan that will work, if you work it. Do you have a genuine plan, based on principles?'
- No.
'Emmet Fox said, "You can never solve a problem on the same level as the problem" - are you willing to change your way of thinking and approach the challenges from a fresh direction, based on First Principles? '
- I think we can reasonably assume I have no option.
So what is Plan B? Do we have a Plan B?
Yes, but it is work in progress. It is:
"Plan B for Britain"
...and to succeed, it must be the people's plan.
You will appreciate that we are yet to put the plan to the people, attain their approval in principle, gather necessary information, finalise the appropriate timescales, and take it through the parliamentary decision-making process.
First the good news.
There is no money problem. Money comes from ideas, from thoughts, which when given appropriate effort provide products and services that are of value to others. It is never a money problem. It is an ideas problem.
There is more good news. We have a plan to succeed, and the price of success is always less than the price of failure. So however harsh or unpalatable Plan B might first appear, dont worry because it is far less painful than the cost of failure.
And there is more. "Every adversity has within it the seed of equal or greater benefit". Every cloud has a silver lining. Well, the adversity may look pretty immense, so there must be an impressive silver lining to be found.
In the words of Ralph Waldo Emerson,
"The way to mend the bad world is to create the right world."
And as Michael de Montaigne noted,
"No wind favours him who has no favoured port."
Plan B is a journey to creating the right world, or at least, creating the right Britain. To plan it successfully, we need to know where we are, where we are headed, how long we want the journey to take, the options available to get us there, and perhaps any places we might want to visit on the way.
So if money were no object, where do we want to be in 5, 10, and 20 years' time? What is the general direction?
- As a rough guide, let us start with "Healthy, Wealthy and Wise", to some extent, both individually and as a nation.
How much debt do we want to bequeath to our children and grandchildren? Obviously, as little as possible - indeed when we reach the goal of being wealthy, that equates to true prosperity, without any debt. There is no such thing as something for nothing, and debt means being enslaved to money. To be truly free, we have to be debt-free. We have to plan to pay off our debt, however hard we need to work.
What sort of world do we want to leave as the legacy of our generation?
A healthy one, in all respects. An honest and just society, indeed the highest ethical standards we can dream of attaining, a society where positive behaviour is rewarded and where negative behaviour is discouraged. A society where achievement is recognised and appreciated, and where crimes are punished proportionately. A society that is accountable, where security is earned by taking responsibility, and where mistakes are mere stepping stones to success, so we can make amends and be forgiven. A system where neighbourhoods and communities prosper by harnessing the power of teamwork and common goals, with a generous and constructive spirit.:
A healthy environment.
The healthiest conditions to do business.
The best education service we can afford.
The best medical health services we can afford.
The best social safety net, public infrastructure and essential government services we can afford.
A Britain that can genuinely help other nations to leave behind the poverty thinking and debased standards that we have mistakenly helped spread.
The best leadership we have, based on the best advice available.
We must always be guided by what we can afford to do, balanced against what we cannot afford not to do. Investment before consumption, guided by our goals and principles.
The public must help expand, refine and prioritise the list. We are unlikely to hit a target we cannot see or do not have, so we must agree definite, progressive and measurable goals to achieve. Looking forward 20 years may sound like crystal-ball-gazing, but it will nevertheless arrive soon enough, and if we dont decide what we want, then we will almost certainly end up with what we don't want. Even if we miss a goal we've strive for, we will still have done far better than if we had no goal.
Can we get back to the standard of living we enjoyed until recently, and if so, when? The answer is that most people can, indeed for honest workers it will be easier in a system that has integrity. Of course the money will have to be earned first, with no reliance upon property inflation and cheap credit. We tried to create a world where everyone could have what they want without first earning the right to have it. Now we are having to give back what we don't deserve. It may not be easy, but there are practical measures we can take to minimise wastage and pain. An accountable and just system means personal responsibility, so we must revise our bankruptcy laws to ensure that those responsible pay the price, rather than innocents, but without stifling all enterprise. In a global market where you cannot know everyone you do business with, there has to be solid regulation under the rule of law, and there has to be fair access to justice.
Can we be debt-free in 20 years time? How about in ten years? How soon can we be prosperous? Well, that is our decision. It depends on our goals, how hard we are willing to work for them, how efficiently we work, and what we are willing to sacrifice. Our sacrifices are our investments, and they pay back multiplied. If we multiply our assets we can discharge our liabilities, and with the knowledge we will gain we are free to move forward to prosperity and the security it brings.
Can we do that within our current political system? Probably not. We need some sort of revolution in governance, as I'm sure many will agree. We have to start from where we are, but we can make changes to allow a new kind of politics to emerge, to represent differing attitudes; how we balance our public expenditure on health, welfare and education will probably always be in debate, balanced against the price we pay through taxation, but one thing is for certain: politics must never again be allowed to come before principles. It must be, and must be seen to be, open, honest, unaccountable and based on the pursuit of long-term success rather than easy money, power and ego.
So the first steps in Plan B are:
1. Put in place our new team of trusted advisers.
2. Form an initial one-year government by consensus, empowering alternative views, to maximise the assets we already have in parliament.
3. Consult and agree definite, measurable short and long term objectives.
4. Create a mechanism that genuinely ensures the highest standard of probity and competence in government and decision-making.
5. Revise bankruptcy legislation and improve the legal system to ensure access to justice for all, whilst eliminating the excessive and corrosive compensation culture.
The next matter to address is the direction to take. That depends entirely upon where we are now, which means we have to face the music. We need a day of reckoning, which we are conducting over the next few weeks with our April 5th tax year as our reference point. The government, businesses and even individuals need to determine our assets, liabilities, expenditure and income on an honest basis, so we know where we are starting from. We need to value the toxic debt in the system realistically against property values, so we can move forward to define our options and live within our means. Only then can we make informed decisions regarding our future goals and the sacrifices we need to make to achieve them.
When will we achieve our goals? Bearing Parkinson's Law in mind - "A task takes as long as there is time to do it" - How long do we want to take over it?
Lets just get the job done. When do we intend to start? The only time to start is right now. The power is in the moment. We have started our journey, we are on our way, so perhaps we should choose to enjoy it - whatever challenges it may bring.
As William Juneau said, "If you would find gold, you must search where gold is."
So let us address the problems one by one.
Firstly, toxic debt, property, the banking crisis and liquidity. One problem.
Getting toxic debt off the books is the Enron way, is it not? Is it honest to pretend the price/cost/loss does not exist? Sweep it under the carpet, let our children pay the price later? We cannot rightly countenance that, and we cannot afford as Leaders to take that direction any longer if we want to attain an honest and just system. Purchasing the toxic debt with taxpayer money or by Quantitative Easing - printing money - are not true options. I've been stupid. The former is attempting to cure debt with more debt, which is the wrong direction completely, and the latter is equivalent to the government stealing value from the money we have - stealing value from people's efforts. There is no such thing as something for nothing. There is always a price to pay.
Of course the markets must be restored, but it must come from ensuring an honest marketplace. Governments must do less, not more. We reap as we sow, which means the government can gain power best by giving power to the people. Let the people decide, based on the best advice available.
The job of government is to ensure justice and personal responsibility, maintain law and order and State security, retain control over national infrastructure, assets and investments - including some basic services like a good education - and most importantly, to set standards by example. I'm sure you can add a few items to that list, but frankly we need to make government so simple and transparent that even idiots can't get it wrong. The less, the better, and keep it simple. Many might suggest the State should perhaps provide a minimal social safety net that guarantees a roof over one's head, food, some heating and a basic health service. It might well be justifiable as an investment we cannot afford not to make. However, the principle of 'he who pays the piper, calls the tune' should operate - taxpayers should decide the extent and level of state support, according to how much they can afford to give. The beneficiaries or paid providers of any 'free at Point Of Supply' government service or benefits have a vested interest, and proper protocol must be adhered to. Your neighbour should not have the power to force you to support their unproductive lifestyle if you cannot afford to. They must learn to live within your means.
What is stifling the markets? Why is there no confidence? Put simply, the markets cannot operate because of excessive government interference. Although the taxpayer cannot in truth afford to underwrite all the toxic debt, the possibility that the government will intervene again and again, ad infinitum, overpaying for chunks of debt as one by one the holders go into administration, is preventing the trading of the debt on the market. The expectation of further interference dictates that no one will sell the debt they hold at its true value, and indeed no one can even value the debt until the governments step back.
Governments are not known for taking criticism well, or for admitting they are the problem, and it took a simple allegory to convince me.
Imagine I have a sack of apples to sell, which I bought for 100, aiming to sell them for $120. You approach me in the market, looking for apples. I tell you that you can buy my apples cheaply because of the recession, and some have gone bad. You may know a cider producer that you can trade them to at a profit, ie the return for your efforts//contacts/investment. Lets us assume that we both believe that at the very worst, the market for apples will bottom out at 25% of the 'high' I paid; they might retail at say $30, so you might therefore offer up to $25.
Unfortunately I will not sell at $25, because I might soon receive $50 or perhaps up to $80 from the government, assuming that the 'book value' of decent apples has already been written down 20% since I bought them. Even were I to allow you to look in the sack (to assess whether the true 'current' retail value of $30 is fair), you could not value them confidently either, because you do not know how much the government will pay for them. The entire market for apples and cider apples is distorted. You cannot confidently increase your offer in case the government do the right thing and quit interfering. The market only functions if we can agree a value. The uncertainty, or lack of confidence, is caused by the presence of the government. There is nothing wrong with the concept of the marketplace, it is a necessity of life, it is where we trade our labour and ideas. Only when we both know that the government will not intervene can we value the assets and do a deal.
The biggest challenge that families face will come as interest rates rise, with some markets facing inflationary pressures whilst others, like housing and labours, facing deflation. The pain and waste involved in thousands of people having to downgrade to housing they can afford may to some extent be avoidable, but we cannot spend money we do not have. We must first make substantial reductions in government expenditure. Few would doubt that at present, in government and elsewhere, there is a lot of waste and excess to address. We can cancel ID cards and defence contracts, indeed the whole world could cut defence spending dramatically if we can agree to develop a wider United Nations defence force, perhaps even hand control of our nuclear warheads to create a secure United Nations nuclear deterrent that no rogue state would take on. Russia and the USA are the players there, we wish them the best, and Britain will do whattever we can. .
There are other areas where massive savings must be made. Limiting or apportioning healthcare is always a difficult matter to approach, but it must be considered. We could re-assess all public sector jobs, salaries and conditions by cost/benefit - indeed we have already started to address this through the equalities programmed audit - to ensure that we retain the excellent staff we have and need, but without paying more than they could earn in the private sector. If as some might suggest we are to encourage people to raid their private pensions to pay off their debts (while paying any tax due), then we might also re-allocate the public sector pension funds that are in reality largely unearned, to pay off national debt. We must certainly renegotiate extant overpriced public contracts, by placing the government in a form of administration if necessary we will do whatever it takes - and we have no real choice but to minimise welfare payments, and use the money to minimise homelessness and support healthcare, if those are deemed to be the priorities. We could then 'underpin' the housing market by offering lenders that are intent upon repossession (say) 25% of the Dec 2007 value of a home, and the state-owned homes could be rented on extendable 10 year tenancies, through the Local Authorities, hopefully to the ex-mortgagees. The house purchases might be (say) 80% financed by Danish-style mortgage equities that can attract foreign investment. If the government can produce a system and a realistic budget that will in time pay off the national debt and support wealth creation, then the markets will have the confidence to re-establish themselves
As long as the 'intervention' is equivalent to a genuine competitive bidder placing a low starting bid at an auction, it should not cause distortion. Imagine that my sack of apples has received a genuine $25 bid from the government, equivalent to a standing bid from a potential purchaser, offering a starting price at which they are confident their business plan can be profitable. If others join the bidding, I will sell to my best advantage. If you can offer $26 I might take it. If you know that the government is confident it is worth at least $25 then you know you can sell it to them at no great loss even if you are proved wrong. But if the government cannot come up with a plan that values our homes at in excess of (say) 25% of the 'peak' value, why would anyone else value it any higher?
It is not beyond the wit of man to devise principled strategies that minimise unnecessary disruption and costs, without distorting the market. If we don't, then we will pay a higher price. Or our children will.
What applies to the toxic debt market (and the housing market) also applies to bank and saving accounts. The government says it will guarantee all savings (up to 50K, or unlimited where govt-controlled banks are concerned) even though we all know that the taxpayer cannot really afford to honour any such guarantee. The banks' own insurance scheme is proving predictably difficult to fund. I If there were only a minimal government guarantee, say 2 or 5 thousand pounds, or even no taxpayer underwriting whatsoever, then the resulting diligence of the market would ensure that savings held in riskier banks were withdrawn and placed in safer institutions or businesses. If transparent the market would better self-regulate, requiring less legislation, and risk-laden or 'bad' banks would fail quickly with minimal effect on society. We have to let bad businesses fail, because it is unprincipled to disadvantage good competing businesses, and we cannot throw more good money after bad. As long as the excessive government guarantee is there, the banks' insurance scheme cannot operate effectively, and the due diligence of the marketplace is bypassed. Regulation must ensure transparency and thus honesty, and must extend to include transparency of off-shore facilities and havens. If your bank account can be scrutinised by government to ensure you are not money-laundering , profiting from dishonesty or evading fair taxes, why should anyone else be allowed a secret account?
Other government interferences have also stopped the labour market from operating efficiently, by imposing on businesses the debilitating costs of gold-plated working conditions, imposing price controls through the minimum wage and the welfare system, and by creating a vast public sector/quango job market where a reduced demand and value is not being reflected in the price (salaries etc) being paid. Governments cannot create jobs. Inventing more public sector positions is merely more unaffordable expenditure. Bringing forward the public sector projects that we were 'putting off until later' (because we could not afford them) can only be done if we can cut other public expenditure to pay for it. We must live within our means.
Put simply, government interference has caused extreme distortion of the money, housing and job markets. It is the interference (in the form of false interest rates, distorted wage structures, false guarantees and ill-advised bail-outs) that has stopped the financial markets from operating.
If the markets don't work, then no one can be usefully and profitably employed.
To restore the markets, we must remove that interference. Some may say', "we can't do that, the banks will all collapse and we will all lose everything". If that is indeed the case, then compounding the problem (through further public borrowing, to compensate the losers) can only reduce the funds that the taxpayer has available to ameliorate the injustice. If 'pulling the plug' by removing the guarantee would make the banks collapse, then they will collapse in future anyway, and putting the day off will merely increase the price we pay (as that is what debt interest does). If we subsidise bad banks, we stop good banks from being able to compete, and we end up with no good banks. Sound familiar? Unless we change the system, the funding we can commit to compensate innocents can only reduce with time.
We will not get richer by following the same debt-based-consumption "poverty thinking" that has created all the problems. The 'something for nothing, have it now and pay later, free homes for all' culture is defunct. It is unprincipled. One might call it an ex-parrot, but in reality it always has been a turkey in disguise.
So what other problems do we have?
Protectionism? That is not commensurate with free markets, and I hope we can agree that we must all now adopt alternatives to bailing out or subsidising our own industries; we have to stop interfering in the markets or they cannot function efficiently.
What about regulation? That is down to individual countries, I have no right to a say in your lawmaking. It is in every countries own best interest to set high standards in order to attract investment. If we clean up our own houses, it will be difficult for rogues to prosper anywhere.
That, my friends, is the basis of Plan B for Britain. There is far more to it which is not part of our remit here today, but we humbly request your consideration and approval, as our friends and neighbours, and we will be happy to discuss any aspects in more detail as we progress.
Thank you.
GB
