The Age of Cheapness

Cheap Sign of the TimesIt’s been rather difficult to focus on politics lately. Panem et circenses abounds particularly at World Cup time: who really wants to think too deeply about current affairs when England’s lineup is suspect and those bloody vuvuzelas haven’t been banned from matches as they damn well ought to be?

I am not immune to this; I have been saying “Hup, Holland, Hup” with the best of them. As my favoured chant indicates, perhaps oddly, my team is the Netherlands. This is for two reasons: first, I lived there for approximately a year and a half and learned the langauge. Second, Dutch fans, unlike their English counterparts, are generally happy. As was stated in a wonderful book about the Netherlands team, “Brilliant Orange” by David Winner, the point of Dutch football is not necessarily to win, but to play the game beautifully. It’s difficult not to find such adherence to quality beguiling, particularly in contrast to the constant rainstorm of complaint from both press and fans that thoroughly drenches the English team.

Such distractions, however, do serve a political purpose, albeit unintentionally. The government has just announced a series of cuts which in a time with less static would bring our present predicament into sharper focus. £10.5 billion of cuts to projects commissioned in the last days of the Labour government are to go: these include relatively harmless if petty cuts such as eliminating free swimming for pensioners and children, but they also are comprised of items such as the cancelling of an £80 million loan to Sheffield Forgemasters, and the shelving of a £450 million project to build new hospitals in the North Tees and Hartlepool area.

The cut to Sheffield Forgemasters looks particularly ridiculous: it seems the government is merely cutting without thinking about the costs associated with making the cut. If Sheffield Forgemasters either closes or shifts production abroad, how much greater will the bill be in terms of unemployment benefit? How much tax revenue will be lost? How much further will the battered industrial sector decline? It’s upon asking these questions that one can perhaps detect what the Coalition Government is intent on: we’re not in for an “Era of Austerity”, rather, we are embarking on the “Age of Cheapness”.

There is a critical difference between being cheap and being frugal. For example, a frugal person will take great care in buying a pair of shoes: he or she will want a pair that is sturdy, comfortable, and durable. The point of the spending at the point of purchase is not to have to expend money again anytime soon. A cheap person however will just buy a pair of crocs, wait until they fall apart, and then buy another pair. A more stark example was highlighted in “Food Inc.”; the film introduced the viewers a Mexican-American family living just above the poverty line. In order to feed themselves, they relied almost solely on “dollar meals” from fast food restaurants though they knew vegetables would be better for them. However, the family now suffers from diabetes, and the medication required to treat it is hardly cheap; the matriarch of the family described how her husband suffered from attacks without it. In this case, cost was not eliminated, merely postponed. It was spread out over a number of increments, and while there was a “sugar rush” of savings in the first instance, it ultimately proved to be a self-defeating exercise.

However, cheapness appears to be one of the most critical success metrics at this time. Politicians, environmentalists and pundits alike seem to be mystified as to how BP could have gotten itself into its present bind: yesterday, this turned into outright anger as BP’s CEO Tony Hayward testified, blandly and ineffectively, on Capitol Hill. However BP’s problems pre-date Hayward’s arrival in post: his predecessor, Lord Browne, was focused almost entirely on cost-cutting. Shareholders loved him because he delivered improved profits in the short-term. Browne even gained the confidence of Peter Mandelson; as a result, he now heads up the panel which is deciding the future of University student fees. However, his cuts at BP meant that he had gutted research and development as well as engineering expertise; it is entirely likely that he embedded a pernicious culture into BP which has emphasised cheapness which has outlasted his departure. Indeed, one of the few plausible reasons for BP picking a problematic sub-contractor like TransOcean, which has had a string of fatal accidents in 2002, 2003, 2005, 2007 and 2008 as well as today’s calamity, is because they could probably offer their services at a lower price. Worse, because of BP’s cost cutting, they couldn’t effectively inspect the work being done on their behalf. However cheapness in this case was not only fatal for the bottom line, it has literally killed people and brought environmental devastation to the Gulf coast.

Yet, our business and political leaders seem oddly reluctant to learn this lesson: there is so much emphasis on “savings now”, “cuts now”, that they are not considering the price to be paid in the near and long term. Our leaders cut university places today: but what are the economic costs of long-term youth unemployment or a deficit of skills? They cut loans to industry now: yet what is the price to be paid by the business and the other firms which rely on that firm remaining in place? What happens to the skillsets of those workers; does the knowledge die out? They cut hospitals: but what are going to be the eventual costs of clearing up the lack of care for the regions affected? When one considers these factors, the government doesn’t look particularly effective nor prudent: it merely appears to be short-sighted. Rather than showing leadership, this Government seems to be being led by the nose by the markets whose passions have already proved fickle and untrustworthy. No doubt the bond holders will be happy with the Government’s announcement, just as shareholders in BP were once delighted by Browne, but as BP shows, the joy is temporary, the real costs and the genuine pain are to come. If this Government really wants to put the nation’s finances back into order, it needs to embrace being frugal, not cheap. Making qualitative moves may not always make you a short term winner, as any fan of the Netherlands can say with a rueful grin, but in the long run, it means that choices are being on the basis of wisdom rather than convenience.

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