With General Election campaigns well under way and the speculative dust settled from the 2015 Budget the timing is right for an analytical look at the coalition and their five-year premiership so far. This piece is not aimed at dissecting each manifesto claim made by the Tories, rather a commentary on living standards in the UK today.
Have the government’s policies actually improved the living standards of the average UK citizen?
Measuring living standards and the statistics and data used is critical to illustrate an accurate portrayal of actual living standards for the average person. Undoubtedly aggregate figures are important, especially when making macro comparisons with other economies. Nonetheless individuals should also be made aware with stats and figures they can truly relate to; GDP Per Capita figures give a clearer indication of this because they show the average wage per person. Moreover, people can see what the average person earns; they can also use the figure and compare how they are doing in comparison.
To arrive at a GDP per capita figure we take the Gross Domestic Product, (the sum of all work, spending and production) and we divide that by the total population we then arrive at a GDP per capita figure. This figure is a more accurate representation of the living standards for the average Briton as it provides the mean wage for everyone in the nation. Like all stats, always take them with a pinch of salt and never consider them to be final or conclusive, rather a useful analytical tool used to portray the bigger picture.
If we go back to 2009 the UK and most advanced economies were in the midst of the worst financial crisis since the Wall Street crash of 1929. I have opined my thoughts on the matter here and here. Prior to the hung parliament and David Cameron assuming leadership, Gordon Brown, the Prime Minister at the time and his Chancellor Alastair Darling, sanctioned tax payer’s money to be used on “bailing out the banks.” The term often used to describe the process that saw taxes being deployed as a monetary safety net for the struggling banks; banks that would have been crushed by their own recklessness had the tax funded finance package not arrived.
It is worth mentioning the background to the crisis in some minor detail as Prime Minister David Cameron has described this election as the “most important in a generation.” This is because the Tories have structured their election campaign on their idea of economic recovery and why continuity rather than change is required for the citizens in the UK. In the pre-election Budget Chancellor of the Exchequer George Osborne claimed, “Our economy had suffered a collapse greater than almost any country.”
Britain’s GDP like other nations suffered as a result of the global financial crash but can The Chancellor truly suggest that the financial crisis hit Britain as hard as some of the less developed nations such as Ireland, Greece or Portugal? The UK is not a Eurozone member, so it does not have to adjust economic policy in line with eighteen other nations, unlike the mentioned nations. In addition, nations such as France and Germany have higher GDP and GDP per capita figures than the UK. Both are members of what is clearly an unbalanced monetary union and still have had a stronger recovery in living standard terms since 2009.
Mr. Osborne added:
“Five years ago, living standards were set back years by the great recession. Today, the latest projections show that living standards will be higher than when we took office.”
At a time when the electorate needed reassurances and tangible evidence of a recovery it seemed a little odd to refer to living standard projections rather than the subsequent record during the coalition’s time in office. The graph below highlights GDP per capita from 2007-2014:
As you can see in 2009 when the coalition took office living standards where at the lowest point on the range displayed. This is no surprise as the aftermath of the banking crisis combined with the deficit reduction policies imposed by the government caused a shock to the economic system. Since then living standards have been the lowest among Britain’s adversaries, Germany and France respectively. So it remains unclear what the Chancellor meant when he proudly professed “Britain was walking tall again.”
According to ONS figures, unemployment in the UK ( February 5.7%) is lower than France (10.6%), Germany (4.8%) has a lower rate however; but the news was welcomed by the coalition. With French unemployment higher than the UK’s it highlights the importance of looking at the average wage per person as opposed to other figures because they do not portray a clearer picture of living standards.
Unemployment figures cannot account for underemployment. Underemployment looks at labour utilization (how productive workers are) as opposed to just labour (people in jobs). For example, a PHD holder working in a fast food restaurant is said to be “underemployed” because they posses a skill set that exceeds their requirements for the role, yet they are employed nonetheless. An extreme example yes but the idea is to look at situations where highly qualified individuals are accepting roles where their skills are not enhanced or utilized. This is a likely factor behind the UK’s laborious productivity and why it can have more people in jobs yet lower wages for those workers. According to the Bank of England in their Quarterly Bulletin 2014 Q2
“Since the onset of the 2007-08 financial crisis, labour productivity in the United Kingdom has been exceptionally weak. Despite some modest improvements in 2013, whole-economy output per hour remains around 16% below the level implied by its pre-crisis trend.”
In addition to that, Stephanie Flanders writing in the Financial Times suggests:
“That the average UK worker, in Yorkshire or anywhere else, now produces less in five days than a French one does in four.”
Clearly the recovery is not close to pre-crisis levels so the government has not raised living standards for the average UK citizen. With slothful productivity levels systemic of what little recovery the nation has seen, it is difficult to fathom how the Chancellor could be so optimistic when clearly the past five years have been subdued. Political rhetoric should not be confused with economic reality and the reality is clear: living standards in the UK are not close to pre-crisis levels.
Hello world. Today’s read touches on a poignant issue and that is the property market in the UK. I’ve previously touched on this issue here where I spoke about the dramatic effect gentrification is having on London. This piece has similarities. The report is from Transparency International UK and they make suggestions that could deter potential criminals laundering their dirty money into the UK property market.
Property in London is a secure investment as the price rarely drops due to excess demand and limited supply. Moreover, if precaution is not applied then inflationary pressures will force most Londoners to look elsewhere for properties which is the reality that most people in London now face, the capital is too expensive for most to afford and it does not help when London is such an attractive place for wealthy foreigners who view properties as secure investments. Market forces do not have to consider morality as they are not actually doing anything wrong from a business perspective; but caution should be applied as the social ramifications could lead to disillusionment from many Londoners, especially those on lower incomes.
Liam Halligan has a reputation as a straight-talking, logical and insightful journalist and this piece is no different. In his piece in The Telegraph Halligan discusses the present banking system in place in the UK and more specifically highlights the link between Investment and retail divisions. He goes on to explain and clarify that only complete separation will ensure catastrophic government bail-outs will not occur in the future, which could potentially save taxpayers billions. I’ve touched on this issue here.
How did the global financial crisis result in large government sector cuts?
The events of 2007 are very well documented. There has been a plethora of texts published, journal articles, books, magazine articles etc. dedicated to covering the horrific downturn of several leading financial markets in 2007. The crash ensured that several billions worth of Sterling, Dollars, Yen and so on were given to numerous financial institutions that were deemed “too big to fail.” The term “too big to fail” is theoretically questionable to say the least, a point I shall discuss further as this piece develops. The significance of the bailout funds were the fact that they were generated from taxes. What was clear however about the government bailouts, particularly in the UK, was the fact that institutions such as Northern Rock (now Virgin Money) and RBS would have collapsed had the government chosen to ignore their pleas and let them fail. It is worth remembering that between 1995-2006 a period of unfettered market capitalism allowed substantial financial products to penetrate several economies. A brand new phenomenon that several households had very little exposure nor knowledge too. It would become clear in the years to follow that this imperfect information would have devastating effects on the entire global economy. This period where credit was “pumped” into the economy was truly unique.
Austerity policies have been discussed in some depth on this blog, my pieces here and here are pieces I wrote, I attempt to ask certain questions about government policy and question the notion that government policy could actually be having an adverse effect on the UK economy. The UK (much like the rest of the areas affected heavily by the global banking crash) have adopted a set of rigid public sector cuts, designed to reduce the large dependency on government for goods and services and also because the current government deem the current debt-to-GDP too high. (86%)
If one were to assess austerity in the UK so far could anyone deem the set of policies a success? Of course, the government intends for their policies to have much longer effects, a legacy effect if you will, but that should not come at the peril of current generations, for governments should dictate policy for both now and the future. Moreover, economists such as Stiglitz, Krugman, Solow, Diamond, Sharpe, Skidelsky and several others all warned against excessive fiscal cuts. There is no empirical evidence of any large economy cutting its way to prosperity. Yet what could easily be described as a gamble or the set of ideologically driven policies have ensured that in the UK and much of the developed world have had their economies remain flat since 2011, having slumped from 2009-2011.
In 2009 the rhetoric around fiscal policy changed. If you go back to Tony Blair’s premiership I do not remember anybody on either side of the House quibbling about government spending, in fact the opposite. The then Shadow Chancellor of the Exchequer George Osborne stated that he would match Labour’s spending. Spending he would later tirade about once he became Chancellor. Moreover, Labour made several economic mistakes one of them was the heavy deregulation of the financial markets that actually allowed a steady and then volatile flow of cheap and available credit to flood the economy. Too many people binged on cheap and available credit and several institutions capitalised on this and were making substantial profits as a result. Making profits is part of our societal fabric and that is not my issue, but in the business world, if a firm does not make profit, eventually that business is driven out and replaced by one that will. This to me that is the essence of capitalism. Why then was RBS, Northern Rock or Lloyds bailed out? Okay, anybody with an account with those firms would have lost their money, which is very unfortunate, but in a market economy, an economy In which proponents of free-market capitalism constantly bombard against government interference, where more than happy to accept taxpayers money. Some clarity would be great because these are the same institutions that support, lobby and advocate for laissez faire policies yet accept the ultimate form of government intervention. This anomaly still baffles me and it is unfortunate that we are still paying the heavy price for the actions of a few financial institutions. Moreover it was the substantial bank bailouts, not excessive government expenditure that caused such a sharp rise in the high levels of public sector debt. Debt that is being tackled with austerity policies. Nothing should ever be “too big to fail” because that is the antithesis of a competitive free market, the kind of market that is encouraged in the UK. The government should have let the failing banks fail so other banks could learn that reckless and irrational behaviour should not be tolerated. It would have been a message of biblical proportions. Without bailing the banks out we would not need austerity and six years and more of lost or flat output. It appears that policy has not favoured the majority of the population who are still readjusting to the large structural changes that have taken place since 2009. The graph below is an economic outlook for the UK and makes for miserable reading.
My main qualm lies with blaming government spending. I have maintained from the outset that some government cuts are good, just like in a household or with your personal consumption; you assess what you are spending and cut what is not required. Fair enough. The extent at which the government in the UK and in several nations in the Euro Zone has undertaken huge public sector cuts and perhaps more importantly, the rate at which they have penetrated society is likely to have long lasting negative effects. So far they have proved highly ineffective in producing genuine economic growth as the graph above displays. It should be noted that anything above zero is “growth,” however, in reality people need what I call tangible growth. If more buildings go up, more roads are finished, more bridges and so on are completed then people up and down the nation will actually see growth for themselves. Obviously all those examples require large labour input. We have not had enough of that in the UK. Those examples also highlight investment and investment has what we call in economics a multiplier effect. Simply put, the government spends £1, that £1 generates more that the initial £1 invested say another £1, then the additional £1 can be reinvested on top of the original £1, so the good or service can generate a much higher multiplier, say £3 in the future. What is important is that it comes from the initial £1 investment. This period (2007-period day) of flat economic activity has needed and needs fiscal investment.
Even with an extremely accommodative monetary policy in the sense that the interest rate has been 0.5% since March 2009 the government’s reluctance to deviate away from an ineffective set of policies is detrimental to the economy. Now is as good a time than ever to undergo strategic and logical investment programmes. Instead, the large public sector cuts have actually been damaging to the government’s deficit reduction plan because unemployment is rising, therefore, transfer payments in the form of Job Seekers Allowances and Unemployment benefits have increased. If the government were to run public sector cuts with substantial investment programmes and run them simultaneously, shifting resources away from areas deemed to be wasting government funds and invest in areas with high returns this would be a better set of policies. Instead, we just have the negativity associated with public sector cuts, which has made the private sector less responsive as a result of the lack of economic activity and weak demand from majority of the public.
It is impossible to cut your way out of a recession; nations need to invest wisely in order to grow. America pulled itself out of recession because their production levels in the late 1930s and early 1940s substantially boosted their economy. The point is, they invested. There was an economic crash and the government invested. The New Deal (America’s recovery plan) took several years to have a noticeable effect on the economy, but it was investment that helped aid their recovery.
The government’s gamble still has not paid off and the UK does not appear to be changing any time soon. Governments need to spend in order to get a return. Without it, our economy shall remain sluggish for some time and this is a direct result of the aftermath of the global banking crisis, not excessive government expenditure.
It has been a week since Chancellor of the Exchequer George Osborne announced his 2013 Budget and the reaction has been quite blunt in all honesty. The reaction probably reflects the state of the economy, flat and underwhelming. Osborne has decided to bring in more cuts, looser monetary policy and he is even trying to create another housing bubble.
Before I analyse some of the key facets of the Budget it should be noted that youth unemployment is close to 1m, underemployment (the number highly skilled workers in low paid work) currently stands at 3.05m and the Bank Of England is warning the country of a triple-dip recession. Things look bleak to say the least. With the economy performing so poorly I was hoping (not expecting) the Chancellor to announce at least one policy that could galvanise consumers; a cut in the rate of VAT would have been ideal. Retailers were complaining about a lack of spending on high streets at Christmas, making things cheaper would incentivise spending simply by making things cheaper. This could provide some remedy to the economy that clearly needs a boost.
But it was not to be and Osborne made it clear he was sticking to Plan A, deficit reduction. Unfortunately spending as a percentage of GDP has actually increased since the Coalition took power and this is due to the increase in unemployment and therefore welfare payments. This accounts for the nominal rise in welfare payments such as Job Seekers Allowance, but the decline in real terms. Home Secretary Iain Duncan Smith announcing a 1% increase.
Plan A is not working to the dismay of Osborne and the Office Of Budgetary Responsibility (OBR). The fiscal watchdog, a body founded by Osborne in 2010 had to revise its growth figures again, predicting growth in 2013 to just 0.6%, down from its previous figure of 1.2%. This is not the first time the OBR has had to revise its growth figures, leaving me to wonder how they can be repeatedly making either optimistic or unrealistic forecasts for growth. In their defence there are obviously only predictions and forecasts should never be taken as a given, still, it does not bode well. A figure of 1.2% is hardly triumphant; let alone slashing that figure by half.
As I mentioned the deficit is actually rising, so the austerity medicine is not actually working…yet. It was always a long-term goal, the goal to reduce the bloated public sector and have the private sector replace the jobs lost, but that clearly is not happening. The current deficit stands at £120billion, so the debt-to-GDP is at 88% (IMF). In other words, the public finances are going to have to reduce significantly until we say any major fiscal policies exerted by the government, as the debt-to-GDP is very high.
Clearly Osborne’s policies highlight his and the government’s stance on fiscal policies. But with the economy is such disarray there will be some avenue to try and stimulate the monetary side of the economy and this is the reason why Osborne has refreshed the Bank Of England’s mandate. In an attempt to provide more room to maneuver the Bank of England will now be a little more flexible in it approach. Perhaps the biggest change in the Bank Of England’s mandate is something known as “explicit forward guidance” whereby the MPC makes a pledge to keep rates very low over a designated period. This should give markets more confidence due to the stability announcements should provide. It should also grant consumers with sufficient information about interest rates on loans, if rates remain low it should encourage more spending. These outcomes remain hypothetical and over time, the Chancellor may refresh the remit. In my opinion, the policies may be ineffective. If you look at the current interest rate, it has been at a record low level of 0.5 % since March 2009 and that still has not added much to market confidence. This situation resembles Japan in the early 1990s. Not only can predictions be made about the interest rate, but the evidence given highlights that it does not always translate to increase in spending, despite the low level of interest attached. We could even be in a liquidity trap, a state in an economy where monetary policies have no effect on growth. The interest rate has been 0.5% since March 2009, since then the Bank Of England have tried to boost the economy by buying government debt, quantitative easing, which is monetary policy. Growth has remained very low and the policies do not appear to be working.
The Chancellor also announced a new policy known as the “Help to Buy” policy, which is designed to protect banks against losses on high value mortgages. Politically, it may look good, but economically there are questions. It sounds like a government funded credit bubble. Whilst I do not think it will resemble anything like what we saw during the Blair days of the economy being pumped full of toxic mortgages. As time elapses, the scheme will undoubtedly become clearer. It may even provide the boost this economy so desperately needs.
In all honesty this Budget has confirmed that the UK has a long road ahead in terms of a tangible growth. The economy continues to “grow” at a disappointing rate and there are more cuts to come. Despite the cut in beer relief, the cut in cooperation tax that benefits large multinationals more than small or medium sized ones, this Budget has reflected the mood of the economy. It has been flat.
There has been no secret of the coalition’s economic policies. That has been to reduce the deficit, i.e. the amount of money the government looses each year. The government has also aimed to reduce the burden of high levels of government debt. How it implements these policies has a drastic effect on the UK economy and in particular, unemployment.
Government debt management affects all aspects of the economy. The substantial reductions in government spending have led to several members of the population forced to find alternative employment. George Osborne was confident that the private sector would compensate for the jobs lost through the government policies. It is therefore vital to analyse how government debt management has affected the rate of unemployment. UK unemployment is currently 2.53 million, which is 7.9% of the population, which has fallen from the previous is sixteen year high. Last year unemployment peaked at 8.4%. This was an increase by 118,000 from September to November 2011 and a further 28,000 from November to January 2012. Clearly the government’s policies have not had the desired effect.
Above is a graphical depiction of the rise in unemployment from 2008, with both jobs losses in the public and private sector also depicted. Despite the claim in the November 2010 Budget, Osborne claimed that the private sector would compensate for the jobs lost in the public sector, the evidence is clearly contrasting to the government’s claim. The Chancellor claimed,
“Public-sector job creation would far outweigh the job losses in the public-sector.”
Unemployment in the UK continues to rise to record levels and the jobs being lost in the public sector are a direct result of government policy. When The Chancellor made the premature assumption that the private sector would compensate for the jobs lost through the public sector it may have highlighted an inadequacy in government policy. High and rising levels of unemployment is detrimental for economic growth because it places a financial strain on those working as transfer payments such as Job Seekers Allowance (JSA) and benefits. The number of individuals claiming JSA has risen by 28,000 from November 2011 to January 2012. With further increases expected for the rest of 2012 and 2013. Moreover, there has been an increase in part-time employment as jobseekers have been desperate to earn some income, but it is proving insufficient to make a substantial difference in terms of contributing towards substantial economic growth.
In addition, the higher than target inflation, those in work will have less disposable income and the government will have to increase transfer payments out to those affected by unemployment. Secondly, tax revenue will also decrease simply because less people are in work, the government must therefore create employment in order to raise taxes so it can finance expenditure that can later contribute to economic growth.
Unemployment is therefore the greatest challenge facing the UK economy because it does not appear to declining. By making such large expenditure cuts, the government may have undermined any recovery effort and may find it very difficult to reduces its debt obligations. The most effective method to reducing government debt is establishing sustained economic growth, however, sustained economic growth in the UK is some considerable way away. Although the UK economy is no longer in recession, rising unemployment will continue to place a severe burden on those in work due to the inflationary and tax restraints already in place, with lower disposable income, growth is likely to remain very low. Moreover, the method in which the government has chosen to reduce its debt may have exacerbated the problem because of the sharp rise in structural unemployment.
The elite tier of professional football in England prior to the formation of the English Premier League was in a state of serious decline. Stagnant revenues, diminishing attendances combined with the egregious image of hooliganism made the highest echelon of English football unappetising for spectators and potential investors. English Football was not highly regarded by global football purists and was not seen as an avenue for investment from potential foreign investors. I am hoping to establish the fundamental differences between parliament style elections and fan ownership, which is more common in Germany and Spain and the ‘laissez-faire’ or “highest bidder wins” market system of private ownership in England. The essence of the argument shall compare FC-Barçelona and Liverpool-FC respectively.
Since the inception of the Premier division the English Premier League has become one of Europe’s most popular divisions. One of the main reasons why some English teams have become financially and commercially more successful is partly due to the ample transformation of the league itself, but also due to the fact that English teams are open and susceptible to foreign investment and ownership. In opposition to that notion are football teams in Spain, with the exception of clubs like Malaga, who have foreign owners; they remain in the minority. A financial institution like FC-Barçelona has a regime in place where members or ‘socis’ buy shares in the club, and elect a President to run and organise the club on their behalf. So the running and handling of the club is at the hands of the shareholders, who are effectively the fans. This is in stark contrast to a club such as Liverpool-FC, whose principal owner John W. Henry and club Chairman Tom Werner run the club on behalf of a firm named Fenway Sports Group. They operate the club without any fan-shareholder scheme. FSG own an array of sports teams, including Major League Baseball team the Boston Red Sox.
Foreign investors have witnessed the growth and expansion of the English Premier League since its formation in 1992. The English Premier League has become the most popular division in world, with broadcasting rights in over two hundred nations. Foreign ownership is the basis of the current argument; foreign investors usually bring vast amounts of financial capital, which is used to aid its competitiveness within the division. The current Premier League champions Manchester United have benefited from substantial foreign investment.
On the 6th February 2007 ownership of Liverpool-FC changed from the Moore’s family into the hands of American businessmen Tom Hicks and George Gillett. The American duo made promises of lavish spending, a new stadium and promises of Liverpool’s ascension back to the elite of English football once again. In 2010 those words could be seen as chimerical at best. The club was purchased with debt and when HBOS could see that there was a good chance they could lose out financially, Martin Broughton was brought in to sell the club. What this episode has done is highlight the potential vulnerability that English football clubs can find themselves in because they are potentially open to ownership from any consortium. This would be impossible at FC-Barçelona due to the system in place.
An institution like FC-Barçelona is not exempt from financial debt, far from it, but the idea of two non-Catalan businessmen buying the club, and adding severe debt to it is unimaginable. This is because there are unwritten barriers in place to prevent such an event from ever occurring. FC-Barçelona pride themselves on certain values, the togetherness with the fans is perhaps the most pivotal. One does not suggest that clubs in England do not share the same unity, quite the contrary, but the actual running of the club is by the fans. Foreigners that are employed can hold influential positions, such as Johannes Cruijff (who was a senior advisor for the club) but never the president. FC-Barcelona would be violating EU law if they abstained from hiring non-Catalans, but elected officials must be from Catalonia if they are to hold the influential positions. This certainly helps matters with the club because football is perhaps the most unique business, in the sense that it requires an almost religious faith an understanding that typical businessmen may not comprehend. No matter how much studying is done prior, people in the city, those around the club are always going to have a far greater passion for the club and this is a problem with foreign ownership because whilst there have been substantial benefits, foreign owners can suffer from imperfect information, which is detrimental to the club.
There are many advantages to foreign ownership within the Premier League however. The increase in popularity because of the increase in foreign investment due to rise in foreign ownership, has propelled it to becoming the highest revenue-generating league in world football. Figures from the 2008/2009 season show that revenue in the elite division of English football was the highest in the world. English football clubs generated some €2.3billion in revenue, this figure was more than double the French Ligue 1 figure of €1.5 billion. This gives us an indication of the revenue generating ability of top-flight football in England. As an entity generating over two billion in revenue it is not surprising that according to Deloitte football accountants, of the top twenty highest revenue raising clubs, seven of them are Premier League teams, including Liverpool-FC. Liverpool were ranked seventh in the 2008/2009 figures, generating some €217.0million in revenue. This figure does show that Liverpool, contrary to popular thought of gross mishandling of financial matters, were still in fact performing to an excellent standard. There was enormous debt, but the figure at hand does at least illustrate an excellent financial performance. Figures prior to 2007, when foreign owners did not own Liverpool were not as high as the current figures. According to Deloitte sport, in 2004/2005, revenue was €181.2million, in 2005/2006, revenue actually fell by €5.2million to €176million, in 2006/2007, revenue rose to €202.1million. This does highlight the sudden importance of new investment, particularly due to the relative financial instability prior to Hicks and Gillett’s tenure.
With the Premier League generating so much in revenue there are many relationships to depict from the increase in foreign ownership and increase in revenues. Arsenal Football Club is a public limited company and their leading shareholder, Stan Kroenke, is an American investor. The recent AGM meeting was viewed as platform for fans to voice their discontent with the running of the club. Further evidence suggesting that a football club requires a strong understanding between fans and board and unfortunately this may be lost with foreign ownership. There is clearly a reliance on foreign ownership in the Premier Division; in addition, the acquisition of Blackburn FC by the Venky family is another example of the clear appeal for foreign investors to buy Premier League clubs. Whilst it would be incorrect to group all foreign owners in the same category, the Venky family’s ownership highlights the lack of cohesion between fans and oweners. This bond is critical for a smooth running of any football club. Moreover, Blackburn’s relegation and farcial managerial “merry-go-round” speaks volumes of a clear lack of understanding from foreign owners.
Més que un club translates to: More than a club. This statement is a reminder of the tradition of FC Barcelona. Due to the harmonisation with board members, players, coaches and fans, FC-Barçelona is operated with coherence, because of the greater understanding, the fans having a much greater input with regards to club matters. The same could be said about clubs such as Bayern Munchen and Ajax. Although they are not of the same ownership model, their respective boards consist of former players. Therefore they function from the bottom up, rather than top down as many English clubs do, Andy Mitten a writer from the UK’s football magazine Four-Four Two suggests that
“Barça is owned by its members and the fans demand daily communication with players and coach.”
The coherence between the fans and the board is one of the main advantages of having fan ownership or heavy involvment of past players. Firstly the bureaucratic responsibilities are spread, not evenly, but spread nonetheless. This means that everybody has got a degree of responsibility and this gives the members a greater voice, so if things are not running smoothly, they can opine some of their immediate concerns and actions will be taken. This kind of power is what majority of Liverpool fans wished they had when the threat of administration was lingering over the club. Because Hicks and Gillett had complete control of Liverpool, the fans discontent went unheard, with their protests and anger failing to produce results they wanted, at the pace they desired. This is an illustration of how fan ownership is superior to a privately owned club that is susceptible to foreign ownership. Liverpool-FC, like every other football club, rely on the bond between club and fans, and that was in jeopardy due to board room events, what made the problem even worse was the fact that many fans felt as if their opinions went unheard, something that could not have materialised at Barcelona, a clear benefit of fan ownership.
The cadre of fans, players, coaches and board members is clearly an advantage in comparison to Liverpool. However, there are some noticeable hindrances to fan ownership nevertheless. FC Barçelona is in debt, despite revenues of €405million. They have outstanding loan repayments of €155million. Debt in business is inevitable, but an option for an English club in this situation would be to try and find a new buyer in order to ease the financial burden, something that drove Liverpool-FC to finding new foreign owners. Not every club that is in debt in England tries to find a new buyer, that is simply not sustainable, however, there is always that option. One of the main reasons why Liverpool had to find new owners was due to the mismanagement of the club’s debt. If Barçelona were open to foreign ownership there would be potential foreign owners waiting to make an approach. Nonetheless, because of the traditions, it is not a possibility. This ‘financial stubbornness’ if you like, thus prohibits all potential avenues of better financial management that would be helped due to foreign investment. Barçelona are a profitable organisation, but debt mismanagement can cripple any organisation, regardless of stature, history or tradition. Even with the possibility of foreign ownership, Premier League clubs are always susceptible to debt; hence the importance to run an efficient model, despite the threat of debt however, there is always that possibility to find a foreign buyer, something that clubs like FC-Barçelona cannot do, or Bayern Munchen would not do..
Barçelona retain all the broadcasting rights, which benefits Barçelona due to the high demand for their services. However, the oligopoly created along with Real-Madrid, has created an imbalanced situation for the rest of Spanish football. English teams receive an equal share of broadcasting revenue, thus increasing competition amongst teams. The oligopoly with Real Madrid has penalised Spanish football as a whole, one of the main reasons why the Premier League is so popular is because of its competitiveness. Moreover, a combination of equal broadcasting rights along with openness to foreign ownership gives the Premier League a competitive advantage.
Fans in England may require a greater voice with non-board room matters, but the fact that clubs are open to foreign ownership is a good attribute, but good owners who understand the needs of the club and the fans are vital to the success of the club, regardless of nationality. Liverpool-FC’s new owners have brought some stability and a clear focus to the club, despite the sacking of previous manager Kenny Dalglish. The renewed stability is welcome, but fans and board alike must realise that a close relationship is vital. Football clubs with heavy fan involvment at fan and professional level function a lot more harmnony and it holds board members accountable to their actions. Certain episodes have blemished English football, the current state of Blackburn Rovers, Portmouth and Liverpool’s financial shape prior to new owners highlight what can happen when owners do not have a clear understanding of the football club they own. Of course other factors must come into consideration, but owners must bear most of the responsiblity, if the owners have a greater input, they have more control, thus the they are more accountable.