In all the hoo-ha about how hard up GCC is because of the council tax freeze, remember this – a blog from 2010. Since then, of course, we’ve had the scandal of the commonwealth Games development and the astronomical profits of property speculators while small businesses and house owners were crushed and evicted by GCC, and there have been some egregious final settlements made to former employees of GCC. That’s where at least some of the council tax went …
Economists use the concept of externalities to describe the impact organisations make upon the society that they operate within. An organisation’s responsibility is to itself and to its own objectives but in the process of discharging this responsibility, it creates an impact on others, positive or negative. If that impact and effect was part of the organisation’s intention – part of its business strategy – that’s fine, but if it was simply an unintended consequence of its pursuit of its objectives, then problems can arise.
An externality is the effect of a transaction between two individuals and a third party who has not consented to, or played any role in the carrying out of that transaction. MILTON FRIEDMAN
For example, a mining company has an environmental impact, a chemical company may pollute the rivers or the atmosphere, a growing company may force smaller companies out of business – the negative examples can be multiplied along familiar lines.
The negative impact of organisations on people and communities can be considerable. A large company that becomes the dominant employer in an area can destroy the entire community if it pulls out. A dominant company can drive down the price of the goods and services it procures, forcing small suppliers into reducing their margins to dangerous levels.
An organisations can engage in practices and processes that are actively dangerous to the health and safety of those it employs and to the external community. Such effects were common in the early stages of the industrial revolution, and they were still occurring in the late 20th century, and will still occur in the 21st century, especially in third world or economically vulnerable communities. (The disaster at the Union Carbide plant in Bhopal in India is still one of the worst examples, and of course, Chernobyl.)
Entrepreneurs have two major concerns – one is to be able to take commercial risks without destroying entirely their own security and economic viability, and the other is to be allowed to focus on the central purpose of the venture without being deflected by external consequences that are not central to the business purpose, especially those that relate to morality, legal compliance and social values.
Business is essentially amoral – morality and legality are constraints imposed on it by a society that it of necessity must operate within, and the dynamic balance of these forces is the essence of capitalism in a free society. Organised crime is simply a business that elects to ignore these constraints.
That is not to say that entrepreneurs, business managers and directors of companies are amoral, or lack a moral compass, but that the very nature of business is without malice or pity, and the moral individual must operate within that context. All too often the individual moral conscience becomes subordinate to, or is crushed by the demands of the organisation.
When businesses are small, and a sole proprietor or family dominates, the business activities can and usually will reflect their personal ethics and morality, and concepts of equity and justice can prevail. In rare cases, that ethical basis can survive the growth of the company if the values of the founder or founders – or indeed the founders themselves – are still present, and some great British companies managed to preserve such an ethos until comparatively recent times. Altruism has existed and does exist in business, but it often has a hard time …
HOW BUSINESS PROTECTS ITSELF
Entrepreneurs protected themselves against the first risk - destroying entirely their own security and economic viability in commercial ventures – by getting the concept of the limited company on to the statute books. The company or corporation became a legal person, distinct from its owners and directors, with almost all of the legal protections an individual person has under law, and a limit set to its liabilities – the limited liability corporation.
Without that legal protection, there can be little doubt that we would not have had the industrialised world that we know today. An entrepreneur could set up a venture and take risks, supported by investors in the company - the shareholders and venture capitalists – and fail occasionally without destroying his or her own capital and financial security, going into personal bankruptcy and losing everything. Legal safeguards were set up to prevent abuse of this immunity by entrepreneurs.
Entrepreneurs protected themselves against the second risk - being deflected by external consequences that were not central to the business purpose, especially those that relate to morality, legal compliance and social values, and not being allowed to focus on the central purpose of the venture – by insisting that it was the job of government and society to impose morality and social values upon them by legislation and regulation. This was the first externalisation, releasing the organisation from the need to establish its own morality and values and leaving them free, within the regulatory constraints, to pursue their business objectives. Thus was the balance to be maintained between the legal protection of the limited liability company and the needs of the society it operated within.
The company, in essence, could be amoral but have its morality imposed by society and be constrained within limits acceptable to that society.
But this ideal rested on an assumption that proved naive and false from the very start, namely that the limited liability company would not be able to influence the legislative constraints that they operated within. In fact, from the earliest days, companies have sought to influence, and in an increasing number of instances, subvert the very legislative process that was meant to constrain them.
The most spectacular example of this has been the insidious, relentless and inexorable growth of the military/industrial complex, a threat defined and named by President Eisenhower in 1961.
This has proved to be a cancerous growth that has perverted our values, our politicians, our democracy and our world.
THE IMPACT OF EXTERNALISATION ON THE UNITED KINGDOM
The results of externalisation in America have been evident for well over a century – explosive industrial and commercial expansion delivering enormous wealth and prosperity to some and utter misery, poverty, sickness and death to others. Initially, the exploited were the immigrant population and the ill-educated lower classes, but then, faced with the growth of organised labour and labour protection legislation at home, exploitation tended to shift to America’s colonies (which of course it always denies having) in Latin America, in its offshore islands, and in many other parts of the world. In this, they were simply following the brutally exploitative model of British imperialism, whilst coyly rejecting the idea of an American empire.
(The continuing American hatred of Castro’s Cuba stems, not only from real ideological or strategic beliefs, but also significantly from the burning resentment of American big business and American organised crime at losing a population that could be exploited with minimal risk and effort.)
But closer to home, the events leading up to the financial meltdown that followed the near-collapse of Northern Rock had already signalled that all was not well with our notional democracy, and the regulation of big business.
Maggie Thatcher began the process in the 1980s that involved widespread deregulation, externalisation and outsourcing of business, and we entered the era of the short-time temporary contract, of cleaning contractors who didn’t clean - killing hospital patients while their directors grew fat on the proceeds - of railways where the left hand didn’t know what the right hand was doing and trains crashed with alarming regularity, of an exploding housing market where essential workers couldn’t afford to live within commuting distance of their place of work, of the destruction of entire mining communities – the list goes on.
Industry, notable the financial sector, were allowed to lobby, bribe and bully the Westminster government and our elected representatives, and to negate or at least emasculate the regulatory authorities designed to keep each industry in check. A government and the regulators turned a blind eye while the banks and the financial industry gambled with the security and the lives and hope of millions of ordinary citizens. The concentration of power – by acquisition – in the newspaper industry and the media also led to distortion of objective journalistic values and to the impotence of government in the face new Citizen Kane’s in their Xanadus.
Revolving doors carried senior civil servants into top jobs in the industries they had been so recently responsible for controlling. Regulatory bodies were – and are - packed with industry representatives, neutering attempts to limit the worst excesses. Our own elected representative were either lobbying themselves or acting as pimps for the professional lobbyists. And of course they were also ripping off the taxpayer by inflating their expenses or actively falsifying them.
A new generation of politicians, drawn at a much younger age from the offices of the party machines and from PR companies, or straight from university, saw politics as a career and a route to enrichment rather than a calling.
They knew nothing, had done nothing, had achieved nothing and were, figuratively speaking, nubile adolescents eagerly awaiting their imminent ravishment and reward by the hard-eyed men and women of big business.
And so we come to Scotland, and to the great city of Glasgow …
EXTERNALISATION’S IMPACT ON SCOTLAND
Scotland, a little nation of over five million people at the northern end of Europe, had nonetheless punched well above its weight for centuries, in culture, in learning, in innovation and invention and had made a crucial contribution to the industrial revolution. It was no stranger to the huge forces of industrial and commercial change that swept across the globe: it had experienced the cruel impact of the shift from the land to the city, from an agrarian society to a mechanised one, and its people had felt the iron hand of capitalism.
The abandonment of personal responsibility by their leaders, in very early forms of externalisation – an externalisation of responsibility and values - driven as always by rampant greed, from the Highland clearances to the dispossession of the lowland cottars had brought misery to hundreds of thousands, and the great workshops of Empire in the ancient city of Glasgow exacted a terrible price from the ordinary people, producing amongst other evils disease, death and malnutrition in the worst slums in Europe.
The clan chiefs unforgivably broke the bonds of faith, blood and absolute trust to enrich themselves (with a few honourable exceptions) and most of them reap the benefits of their ill-gotten gains to this day. The lowland landowners were little better, and both highland and lowlands leaders were prepared to ruthlessly suppress any attempts by the people they were exploiting and oppressing to obtain justice.
(The ‘Big Factor’, John Campbell, Chamberlain of the Duke of Argyll’s estates in Mull and Tiree, was so hated by his former tenants that emigrant communities in America and Canada celebrated his death (1872) in ‘uninhibited style’ with singing, bonfires and drinking.)
We must never forget that this, in the main, was done by Scots to Scots. There are those who are still doing it to this day, and their betrayal is all the greater because they know their history. They still see their noblest prospect as the high road to England, specifically Westminster, and once there, Scotland becomes almost an embarrassing memory.
In our own time, Scotland was devastated by Maggie Thatcher’s destruction of large parts of our industrial heritage. Her cynical and ill-judged attempt to pilot the hated poll tax in Scotland cost her party dear, and ultimately brought her down as Prime Minister. The Tory Party has been a negligible force in Scotland since that time.
But of course Scotland had been, for over half a century, a Labour fiefdom, nowhere more powerful than in Glasgow, one that was propped up by the ineffectual Scottish Liberal Democrats, whose utter betrayal of the ideals and principles of liberalism continues under Tavish Scott, in the name of unionism.
The revelations followed Steven Purcell’s tragic collapse and resignation show something deeply suspect in the heart of the administration of Gleschu - the dear green place - by the Labour-dominated City Council.
ALEOs and Glasgow City Council
The responsibilities of Glasgow City Council are as extensive and complex as one would expect from the requirements of governance of one of the major cities of the United Kingdom, a city of 620,000 souls. The governance of this great city is entrusted by its electorate to elected councillors, and they represent the democratic will and control of the people of Glasgow over how their city is run.
Ideally, those running for office would see the role of councillor as a vocation, not as a career ladders nor as a route to personal wealth. Power would be sought unselfishly to serve the people.
But life – and politicians – ain’t always like that …
An elected councillor can expect to earn a minimum of £16,234 per annum, and has pension rights in addition to this. This is about two thirds of the average wage and in itself is unlikely to attract an ambitious and able person who is not driven by an altruistic wish to serve his or her fellow citizens, and is even less likely to persuade someone to give up a higher rate of remuneration to seek election.
However, anyone who was driven by money and career considerations would already be highly aware that the potential earnings are very much higher. The great British public were duly shocked when the Telegraph exposed the true level of earnings of honourable and right honourable members of Parliament, made up of expenses, expenses fiddles and extra-curricular activities of various kinds, including directorships, consulting, and other nice little earners too numerous to name.
The Glasgow electorate – not easily shockable after generations of corrupt administration – might just be beginning to see what is going on by the light that the Herald (belatedly, but God bless them for doing it now!) has been mercilessly shining into the earnings activities of their councillors.
And they may be coming to grips with the acronym that represents a nice little earner – the ALEO, or Arms Length External Organisation, which should really be ALEGO, Arms Length Governance External Organisation. I suppose ALEGO was too close to A LEG OVER, with its related concept of screwing the electorate. Or is it related to that old Glasgow chant about the Eely Aleo?
So what are the ALEOs? They are external organisations set up by Glasgow City Council to run departments and functions and deliver services to the people of Glasgow that were formerly run by Glasgow City Council. They are given a considerable degree of freedom of decision and action, but have at least one board member who is also a councillor, to ensure that they remember to whom they are ultimately accountable – the people of Glasgow.
Here’s what Glasgow City Council says about the principles of governance in a paper relating to ALEOs by its External Governance Committee on 26th May 2009.
Governance has been defined as the means by which an organisation ensures that the level of direction and management of the affairs of the organisation are satisfactory, aligns corporate behaviour with the expectations of the public and maintains accountability. The process of governance therefore involves the clear identification of responsibilities, accountabilities and adequate systems of supervision, control and communication. Fundamentally, governance is about how the organisation ensures that it is doing the right things, in the right way, for the right people, in a timely, inclusive, open, honest and accountable manner.
The Council has statutory responsibility for the delivery of a range of services and it meets
this through its operating structures and its governance arrangements.
END OF EXTRACT
ALEOs are therefore a manifestation of externalisation – outsourcing – and of shuffling off the inconvenient need to run departments, deal with real people and with trades unions - in other words, of reducing, if not avoiding real responsibility for doing what Glasgow City Council is elected to do. A fig-leaf of residual control and accountability is provided by the external director or directors appointed from the ranks of councillors – and perhaps friends of the Labour Party.
It goes without saying that the above is not the rationale used by Glasgow City Council to justify the helter-skelter multiplication of ALEOs.
It was, of course, no part of justification for the setting up of the ALEOs to provide a nice little earner for councillors or others, nor to regard the ability of the new external directors, in the City Council’s own words (from the extract above) to
… ensure that the level of direction and management of the affairs of the organisation are satisfactory
… align corporate behaviour with the expectations of the public and maintains accountability
(provide) … clear identification of responsibilities, accountabilities and adequate systems of supervision, control and communication
… ensure that it (the ALEO) is doing the right things, in the right way, for the right people, in a timely, inclusive, open, honest and accountable manner
as rather likely to be compromised by their need to protect a healthy supplement to their council salaries and to stay on the right side of their new board members. The eternal question cui bono? always has a familiar answer in Glasgow – Who dae ye think, Jimmy?
The potential of corruption in government is ever-present, and it is not McCarthyite to say that the facts revealed by the Herald give grounds for grave disquiet.
Whit’s goin’ on Jimmy, eh? There’s somethin’ no’ right here, ah can smell it fae here …