Reducing Greed

If you have money to invest should you consider where and how it is invested or should you just look for the greatest possible return without considering the implications of that decision. Now before all those investors come back and say we always put our money into things that we would be happy with let me ask how it is that so much of our money is invested in countries that are not democracies (the biggest being China) or run by despots (just think of oil - Saudi Arabia) or where working conditions for the people who have to do the physical labour are not what we would accept (Bangladesh) or whose Human Rights record is shameful (Uzbekistan, Burma). This is not an attack on globalization but we do have a choice!! as to where we invest. Delegating that responsibility to Fund Managers is a cop out not a sufficient reason. The consequence of this global investment strategy is that rates of return are greater outside Europe but that is not without effects in Europe to which I shall refer in a moment. The chase after high rates of return means that local investment i.e. GB and Europe have to compete with economies whose wage rates for example might be one hundredth of those locally in GB and Europe. However if this nonsense is to be addressed then we should start at home and this is what I wish to comment upon here.

A good example would be the Private Finance Initiative (PFI). These contracts for government projects/facilities are typically for 25 to 30 years and predominantly are design, build and operate e.g a Hospital or School. As a government project/facility there are a very safe investment i.e. the level of risk is very low! How is it then that in negotiations the private sector seeks to show that it is risky and therefore they have to be paid what many would consider exorbitant if not extortionate rates. And those negotiations also have extortionate fees paid by the tax payer! Why is it therefore that rates of return on these projects/facilities have to be similar to those in the developing world. If truth be told our greed condemns Bangladeshi textile workers to a (short) life of poverty!

So starting at home:
PFI
1) Enforce re-financing to reflect current (UK) interest rates with the savings shared. To my certain knowledge finance rates were set at around 7.5% - this could easily be reduced to 3.5% (Bank of England is currently 0.5%). This should be applied retrospectively. On present rates none of the schemes would be value for money when compared with Public Sector provision.
2) Independent forensic audit of each scheme paid for by the company and provided to the Public Accounts Committee of the House Of Commons. Most providers have used serpent like PR where similar questions have been raised saying, "We operate "open book"". It is, of course, nothing of the sort! Within a nano second that refuge of the snake oil salesperson appears in the form of "commercial confidentiality". These are publicly funded projects - we have a right to consider whether we are being cheated. I think most would agree we are so it is up to those commercial entities to prove that is not the case - after all we are paying!
3) Where a price escalator exists then this should be based on CPI rather than RPI - if it is good enough for Public Service pensioners and wage negotiations its good enough for them.
4) Fees in preparation for and/or adjustments to PFI contracts may only be levied following full and open competition for the work.
5) A new provision to be applied to existing and future contracts of "Indigenous provider comparison" such that the recipient of the PFI service can determine that they are not being "ripped off" - the £200 to change a light bulb scam.

The purpose of these measures would be to properly reflect the security of these contracts with the very low level of risk and thereby give rise to a more realistic appreciation of the necessary rate of return. So those financiers who would not get out of bed for a rate of return of less than 10% to 12.5% could stay there. Expectations should reduce and more stability should help to develop ethical investment. Rates of return of around 5% for these projects would still be good (Long term rates over 80 0r 90 years have been about 6.5% in {see Independent 21/03/2013 p.55 Satyajitt Das}). The present conditions can now be seen to have many more disadvantages than advantages so it is time to change! Since it is public money then this is all the more urgent because aren't we all in this together.