Here's How – Here’s How 139 – German Divisions Part I

Professor Julian Nida-Rümelin is is a Professor of Philosophy and Political Theory at Ludwig Maximilian University of Munich. He was the State Minister for Culture of the Federal Republic of Germany under Gerhard Schröder.

Professor Nida-Rümelin, along with dozens of other prominent Germans signed a letter in Die Zeit, a leading German newspaper, about the Ukraine’s war against the Russian invasion, under the headline Ceasefire Now. In the second part of this series we will hear an opposing point of view from the international relations expert Jessica Berlin, that will go up on Thursday.

*****

During the 1980s and 1990s, it cost up to 44 pence per minute to make a call from a landline in Ireland to a landline in Britain. I’m going to give you a minute to absorb just how huge that cost was, compared to today. 44 pence, that’s 56 cent in new money, 56 cent per minute.

At the time, you could have bought two ice-creams for that, that would cost you about €2 each now, so in terms of purchasing power, that 44 pence per minute could easily be translated into €4 per minute now, and Britain was the cheapest international destination to call, everywhere else was much more expensive.

In the early 1980s, British Telecom had been privatised, and competition was being brought in, first for businesses and then for home phones, and prices there were dropping sharply. The same was happening across the western world. In one 18-month period, Eircom, as it was, increased their prices three separate times in 18 months.

Think about just how crucifying those costs were for any business trying to export, not to mention to families of people who had emigrated, counting out the seconds that they could afford to talk to their loved ones.

It was nearly 20 years before Ireland to caught up and allowed competition. Eircom had their finger stuck in the dyke, but the floodwaters of competition were lapping ever closer.

At some point, one enterprising business set up a service whereby people in Ireland could dial a Newry number, relatively cheap to call, but across the border and outside the control of Eircom, and then dial in an account number, a password and an international number into an automated system and call internationally much cheaper.

Eircom responded to this glimmer of competition by reprogramming their entire network to block calls to this Newry number, and started a game of cat-and-mouse whereby the service tried to switch to new access numbers faster than Eircom could block them.

If any private business behaved like this now, they would be lucky to avoid the worst of publicity on Twitter and Liveline, and could well be prosecuted under the Competition Act. And now, calling landlines in Britain or most of the rest of the world is functionally free.

I was reminded of this when I heard the kerfuffle about AIB’s plans, hastily scrapped, to make 70 of their branches cash-free. You could go in and get a mortgage, apply for a loan or whatever but not withdraw or deposit actual notes or coins.

AIB, in case you have forgotten, is 64 per cent owned by the state, it’s a nationalised business. Banking, like telecoms, is a pretty highly-regulated sector. It sort of has to be, as we found out to our cost in the great crash.

But the problem with nationalised businesses that are also state-regulated, is that the state has a conflict of interests. The purpose of the regulation is to make sure that the consumers are protected, that the regulated businesses don’t rip them off, and that business doesn’t do dodgy things, such as lend huge amounts to high-risk clients and make the whole system go bust.

That’s a tension between the business and the regulator. The business wants to screw the customer for every cent they can, the regulator, theoretically, wants to make sure prices are fair.

The people running the business may want to take massive gambles, because they will be rewarded if the risks pay off, an if the risks go bad, the directors aren’t too worried, because it’s the shareholders’ money, not theirs that is lost. The regulator is there to make sure the market is stable.

But when the state who run the regulator are also the owner of the business, they are sitting on both sides of the table. In particular, the government has a duty to make sure that consumers aren’t ripped off, but they have a temptation to soft-peddle that, if it means that the extra profits the business makes goes to them.

For example, Irish mortgage interest rates are much higher than many other countries in the eurozone, despite the fact that base interest rates are identical. The government could create a regulatory environment that would encourage, say, German banks to set up an operation to lend to Irish homebuyers. The advantage would be that that would save Irish people huge amounts of money.

But the disadvantage is that that would save Irish people huge amounts of money – money which goes into AIB’s profits, and then to the state.

Also, remember that the workers in a nationalised industry are likely to oppose anything that might cost them their job, and could well oppose anything that even changes the routine that they are used to. The benefits of reforming any given industry are usually thinly spread around the whole population, but the cost of that reform is often focussed sharply on the workers in that industry, who can be highly organised and highly motivated to resist those reforms, so necessary reforms can be delayed for years and decades, not because most people are against them, they aren’t; but just because the tiny number of people opposed to the reforms are better organised at putting pressure on politicians.

That’s exactly what happened with the Eircom unions who successfully resisted reform for decades, knowing that politicians were too cowardly to face them down.

There is another disadvantage with this conflict of interests. It is notable in Ireland evictions, repossessions for non-payment of mortgages are incredibly rare. There are cases winding through the courts for repossession of homes where no meaningful payments have been made on the mortgage for 15 years or more, in some cases almost from the day the mortgage was taken out.

Where the government owns banks, it’s inevitable that they will lean on those banks, so as not to create the politically toxic image of them being chased around by reporters asking them why don’t they intervene to prevent this or that family from being thrown out on the side of the road.

The effect of this is obvious, a certain cohort of people will live years, sometimes of decades of their lives defying the bank to evict them. That’s not the case with all defaulters, some people have good intentions, but fall on hard times, but it’s certainly there, and it costs the bank a huge amount, and that cost is passed onto the higher mortgage rates that many of the rest of us have to pay.

That, along with the cost of all the other inefficiencies is not a small cost. The average interest rate for Irish people taking out a new mortgage is 2.77 per cent. The eurozone average is 1.59 per cent, and the average cost in Germany is 1.16 per cent.

So to try to make those figures more meaningful, that means, when you start paying your mortgage, and it is typically mostly interest you are paying at that point, for every €1000 of interest that a German borrower is paying each month, you are paying that same thousand euro, and on top if it, you are paying another €1,388 euro that the German borrower doesn’t have to pay.

A business just can’t be a business if every decision they take has to be run past the minister, who has to run it past the local TD, to see if it might cost him his seat, and cost the government their majority in the next election.

And a decision just like that was the one by AIB to eliminate cash services at 70 branches. Almost all retail banking is done online these days. That’s a huge efficiency, and it’s blindingly obvious that if, when we get a bill, we don’t go down to the local bank, and the crumpled-up bill that’s been in our pocket for a week, and count out the payment in notes and coins, and get the bill stamped as paid, automating the whole thing means that it costs everyone less.

The reason it costs everyone less is because we don’t need to pay bank staff to stand in the branch all day counting in those notes and coins, and we don’t need to pay the rent on a lot of those branches.

The bottom line is that we don’t need nearly as many people in retail banking, because of the advance of technology, for exactly the same reason that we don’t need as many people working in VHS tape factories, or printing telephone books, or making lead for petrol, or making petrol engines at all for that matter. That means some people’s jobs must change, and if you are against that in principle, then we can all go back to being medieval peasants, scraping a living out of the dirt.

The figures that I’ve seen suggest that we will eventually need about one-fifth of the retail banking network that we needed before almost everything went online. Across the EU, the number of bank branches is falling by about six per cent per year.

So when I saw a headline on TheJournal.ie, which said “Politicians declare victory for ‘people power’ after AIB u-turn on withdrawing cash services”, I felt… well, best not to say how I felt, I’ll just read you the opening paragraphs of the story.

AFTER UNLEASHING A flood of anger from customers and politicians, AIB announced today that it was reversing its decision to remove cash services from 70 of its branches across the country, prompting a slew of TDs to declare a victory for people power.
The swift u-turn came following an intercession from Taoiseach Michéal Martin and as three TDs from the Rural Independent Group – Mattie McGrath, Michael Collins and Danny Healy-Rae – were in the bank’s Dublin city centre headquarters, demanding a meeting with its CEO Colin Hunt.
The three rural representatives had pledged to stay in the plush Molesworth Street offices until they had secured a meeting with senior management. They were therefore in prime position to declare victory to the media waiting outside when the AIB announcement came through.
TheJournal.ie

The three stooges, McGrath, Collins and Healy-Rae are people who are not normally associated with supporting protests or sit-ins. I didn’t see them supporting the Debenhams workers. I didn’t see them in any protests against the war in Ukraine; and I certainly didn’t hear a peep out of them when billions of taxpayers’ money was being hosed away in the bank guarantee.

Probably best not to say with I think of them running to catch a headline on this nonsense protest.