Precision in verbal engineering
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Good ideas are sometimes slated when something goes wrong. It doesn’t mean they are bad ideas
Reliant Robins once rode the British highways. The three-wheeled, fibreglass-bodied car was small, light, economical, cheap to tax, manoeuvrable and could be driven with a motorcycle licence. However, its advantages did not stop it being the butt of jokes.
But while the Reliant Robin was actually a good idea, the Sinclair C5, despite being a pioneering electric vehicle, was a rotten idea – it was very slow and so low on the road one reviewer suggested it be fitted with a periscope! The Sinclair C5 was ill-conceived and was a bad idea from the start.
But it is sometimes not a problem with an idea that makes it a "good" or "bad" idea in the public perception. A bad press can result in the baby being thrown out with the bath water. Critics, who are often themselves bereft of ideas are frequently the worst judges of innovation. The stock in trade of the populist journalist is, "I told you so" when the claim to have predicted the apparently failures in the financial markets.
The financial derivatives sector is a case in point. The catastrophe of Nick Leeson’s felling of Baring’s Bank in 1992 the hole Jérôme Kerviel blasted in the Société Générale balance sheet in 2008 and other frauds and misconceived derivatives transactions gave these financial instruments such a bad name that Warren Buffet described them as "Financial weapons of mass destruction".
In particular securitisation and credit default swaps (CDS) received a "bad rap" in the wake of the 2007 financial crash accused of submerging the likes of Lehmann Brothers, Bear Stearns and the American International Group (AIG). This week the Pope, no less, condemned CDSs.
But despite the negative public perception of derivatives the market continues to grow and people who actively engage in financial markets will say, that derivatives, securitisation and CDSs have been, and continues to be, hugely successful in increasing liquidity and spreading risk.
In Britain the failure of the privatised East Coast railway and the collapse of Carillion a firm that relied on outsourced contracts from government and the private finance initiative (PFI) projects have tarred rail privatisation, outsourcing and PFI.
Critics have leapt on their respective bandwagons to condemn such all three.
Rail nationalisation has soared in popularity among those with a rosy view of puffing steam trains. They appear blissfully unaware the rail industry’s perennial financial problems in both private (prior to 1947) and public hands after nationalisation. But most telling is the ignorance that rail services in Britain serve a tiny minority – we travel around 654 billion passenger kilometres by car each year and a meagre 75 billion by rail. I’ll declare an interest, I prefer travelling by rail. But rationally speaking is the public ownership of trains inherently a "good idea"?
On the face of it outsourcing seems like a good idea: creating an environment in which many competing firms can achieve savings of 10% to 30% to the government. What’s not to like?
Well, it didn’t work out like that. In the past two years 80% of all public-sector outsourcing contracts have been awarded to five firms with Capita securing more than half of the contracts. A good idea badly implemented? The poor public perception of outsourcing has not been coloured by the domination of the sector by a few firms, but how those firms operate in sensitive areas like health care, immigration and dealing with the disabled and vulnerable where some of their behaviours have been appalling.
The big daddy of outsourcing is the Private Finance Initiative (PFI). It was once such a good idea that it was embraced by both Conservative and Labour governments alike. At the time using private finance to fund much need infrastructure projects while pushing repayment onto future generations seemed like a splendid idea for the public purse.
But hold on, the National Audit Office recently revealed that some PFI contracts are costing the public 40% more than would have been the case had public money been used directly. Wasn’t it always the case that governments could borrow more cheaply than the private sector? And that was before the financial crisis and quantitative easing combined with high costs and inflexible contracts revealed PFI as a bad deal.
What ultimately seems to be a "good idea", or a "bad idea" has as much to do with public perception as from the intrinsic virtues of the idea. But what ultimately proves to be a good idea arises from the operation and implementation of the idea – whether it was well conceived and well executed, not whether, like the Reliant Robin, it was simply unloved.