Digital Taylorism – Why our Jobs are Getting Worse

This brilliant article from the Grauniad absolutely hit a nerve with me. It describes the reasons why I hate the management edifice around what my job has become, though at the moment what I do is okay – if only the blasted System would let me get on an do it with death-by-bureaucracy.

When I started work at my current company as a lowly grunt Assistant Engineer, I had the authority to fill in a purchase requisition for up to £500 without higher level authorisation, and that was about right for the level of work. It wasn’t generally abused, either.

Now I have to get authorisation from the next level up simply to buy a rail ticket, and that next level has to get the okay and a reference number from some other part of Business Operations. I don’t know what you have to do to buy pens and paperclips these days. The company’s perfectly entitled to introduce all this bureaucracy, but it was all snuck in while talking about employee empowerment and BS like that.

Software development used to be a creative process. It is now a revolting straitjacketed system where an idea gets posted to s Star Chamber whose purpose is to destroy anything that is innovative or potentially risky, then fire anything that gets through into another bureaucratic process to make sure it fits in with a morass of process and policy definitions. Presumably the original purpose of the Star Chamber was something else but my description fits the most obvious results. For some reason we seem to take longer to get anything involving software to market, so we outsource more of  it to India. The main advantage the Indian guys have is they don’t seem to have to go through this process, though they don’t always have the gumption to apply common sense to the results, ending up with some classic howlers. This isn’t a Daily Mail-esque rant on Indian IT people – the contracts seem to be written in some peculiar way that almost prohibits initiative. These guys are bright enough but their hands are tied. You gets what you pays for, and we don’t want to pay for them to think. So we or our customers end up debugging the results, but hey, the cycle time is shorter, and Agile development is all about failing fast and frequently. Well, that’s how we seem to do it, it is meant to work differently.

Fortunately I got out of software into a one-off hardware project that will hopefully see me out 🙂 I’d have throttled one of the process monkeys by now if I were in software now.

The problem is that technology has allowed bean-counters to micromanage our jobs at arm’s length. Taylor introduced ‘scientific management’ as a way of getting the American worker to do as they were told; it had the side effect of deskilling workers and de-humanising the workplace. As the Philip Brown from Praxis puts it

the twentyfirst century is the age of digital Taylorism. This involves translating knowledge work into working knowledge through the extraction, codification and digitalisation of knowledge into software prescripts and packages that can be transmitted and manipulated by others regardless of location.

The Graun follows on:

From now on, believe Brown and his colleagues, “permission to think” will be “restricted to a relatively small group of knowledge workers in the UK”. The rest will be turned into routine and farmed off to regional offices in eastern Europe or India.

Nice. I want out of that sort of environment. Working without thinking is like living without breathing to me.

The actual paper itself is a fascinating read. Basically, we are hosed.

Companies are using the very latest
technologies to produce high value-added goods and services
in the midst of third world poverty as they no longer require the
full array of institutional supports to provide the skills base that
we are accustomed to in the West.

Fasten your seat belts, folks, and adopt the brace position. If these guys are right we are stuffed in the West – there is nothing we can do to compete in the race to the bottom. As the Philip Brown et al say on page 15

The growth of this high end capacity in emerging economies is
likely to cause a serious challenge to the West as differences in
productivity and quality narrow, contributing to a reverse (Dutch) auction, reflecting a weakening in the trading positions of large numbers of middle class professionals, managers and technicians in OECD economies.

self-reliance, DIY and A-Levels

Building a packing table for the Oak Tree a couple of days ago, it struck me how much we’ve got used to buying in rather than do for ourselves compared to the last few decades. This raises the costs of living today in all sorts of ways. Our neighbours use an ironing service, there is a company that makes its living going round with a pressure washer cleaning out some people’s wheelie bins after they’ve been emptied. For those with children there are any number of child-related services, from childcare itself to after-school classes and activities.

All of these services add regular increments to many people’s cost of living. None of the increments in isolation looks particularly onerous, but the cumulative effect is quite remarkable. Take the regular outgoings my parents had in the 1970s

  • mortgage
  • car
  • electricity
  • gas
  • water
  • land-line phone
  • rates (equated to Council Tax nowadays)
  • TV licence

and now take a look at the extras a typical modern family would have on top of those costs

  • mobile phone subscription(s)
  • Sky TV/cable
  • broadband
  • childcare
  • second car

They could easily end up needing another £2000-5000 a year. They wouldn’t necessarily feel any better off for it. but it is still a hit to their pockets.

With the table I was making, the advantage of building farm equipment is it is cheaper than buying, natch, and the advantage for me as builder is that rustic construction adds charm. I am no cabinet-maker, my carpentry is imprecise, so outdoor construction is good for me. It has the satisfaction of working with real stuff with my hands, unlike how I earn a living at the moment. Plus it costs less than £50 in wood, whereas it would have cost me £350 from Amazon. Granted, that table looks nicer, but it’s the wrong height since you stand at a packing table

I learned working with tools and DIY as an adult, because though my Dad worked as a maintenance fitter he did not want to pass this on because he wanted me to aspire to better things. Which is roughly what happened, so he did well, although as a tyro and skint householder I had to learn plumbing and the like from books, colleagues and trial and error.

Once again, thinking about what he did for a living, companies used to repair equipment in far more detail than they do now. If something at work needed repairing, Dad would manufacture the replacement by making it from materials, often turning parts on a lathe and using tools, both metal and wood parts, and the company had him and a few other guys doing this.

Nowadays, this would be contracted out to the supplier and they would swap larger parts. I observed the same changes when I worked at the BBC – when I worked in studios we would fault-find down to the component level and replace individual resistors and transistors. This started to move towards replacing sub-assemblies when I left, and now I would imagine most items would be on a maintenance contract with the supplier, who would swap the whole item and simply throw out faulty modules.

In short, we’ve become even purer consumers; we don’t fix anything any more, and we are far less self-reliant as a result. Life costs more as a result, since we have to replace rather than repair. As for building stuff from scratch, we seem to have neither the time nor the money. When I look at, say, this  Popular Mechanics from 1971 I’m amazed at the level of skill assumed – I wouldn’t know what some of the hand tools are for, never mind use them, and yet many articles assume this level of craft skill.

Why it’s not the employers getting shafted by A-Level grade inflation, it’s the kids!

Every crabby old git has a chance to take a cheap shot at A Level results when they come out round about this time of year, so I might as well have my turn here. This graph (okay it is from the Daily Fail but the issue of grade inflation has enough other publicity) says it all.

There was an interesting thread on this board, where it shows that the reasons for the change has been lost in the mists of time for people taking A levels now. I am old enough to remember how this worked before the kink in the graph, and the explanation is simple.

When I took my A levels in the late 1970s, they were graded in terms of relative levels. That is, about 8% of the candidates got an A grade. This system, called a norm reference, is self-calibrating. It is inevitable that some years the papers will be harder than in other years, but this means that one year the A pass mark would be 80%, if it were harder the next year the pass mark would be 75%for example.

This delivers results that are useful for employers and universities. In practice, employers and unis have only so many places. They know roughly how many people they want to take on, and if they have academic requirements, they can then say they want to take the top 8% (or 80% – their needs will vary) and adjust pay rates accordingly if they are employers. Be less selective and you can pay less, but you may then accept you get people who are less smart. Smartness is not the only requirement at work and is a hindrance for some jobs, but at least you can sift the candidates and place them relative to their peers.

The downside of this method is that some candidates fail, or at least get grades that are worthless in the marketplace. At some point it was deemed that this was a Bad Thing, because some people’s self-esteem is harmed by knowing they aren’t as bright as other people. For some reason this was so upsetting that they had to cover it up.

I won’t go all Atlas Shrugged on you, but it’s a fact that ability is not spread evenly at all. Some people are stupid. There. I’ve managed to say it. Some people aren’t geniuses, much as it may come as a surprise to their parents. For instance, I wasn’t bright enough to get into Cambridge. Usain Bolt has the edge on me in the 100m too, I’m sad to say. The problem here, is that fixing the exams to cover up this nasty little fact of life may have made the dim feel better but it doesn’t allow the clever to shine.

Two things were done, one was to pretend that the exams tested an absolute standard, immediately destroying the feedback mechanism that calibrated the difficulty of the exams to the pass mark. A norm referenced system that allocates marks as a percentage of candidates is not easy to fiddle, and I find it hard to believe that the one year’s 300,000 A level entrants are going to be that much brighter or dimmer than the next year’s. A criterion referenced system is easy as pie to fiddle, because who judges the difficulty, and how do you measure difficulty  other than by how many people pass? It’s just all too open to abuse, and the incentive to up the pass rate is always there.

Because the norm reference was lost, the Uniform Mark Scheme was apparently an attempt to nut variations between different paper setting boards.

There were other changes that made it possible to increase grades. When I took A levels you only resat an exam if you had failed, and you had to take the whole exam again. Now with the modular system you can resit individual components, keeping the best mark for each component, assembling your A level one piece at a time.  If I were a prospective employer I would want to know resit details. Something gives me the feeling that someone who passes first time is perhaps better than someone who needs to take five bites at the cherry 🙂

The tragedy here is borne by the young people that the current system fails – the academically gifted who can’t shine in this system because the dim bulbs are being lit up from behind. It is not the exam takers who have failed, it is the designers of a system that has lost its ability to discriminate.

A second perversity of the British university system is the ramping up of admissions targets, from 7% when I entered university about 30 years ago to 50% now. There is an implicit lowering of of the bar in that. It is possible that better nutrition, health-care and education has improved the level of intelligence somewhat over the years, but probably not by that much 😉

Compare the mayhem of UK clearing with this description of the German numerus clausus which seems to manage the numbers and indeed the studied subjects. Such a system, however, is only possible because the Abitur (A-level equivalent) still discriminates by ability. Obviously this means those that don’t do well in the Abitur don’t get to realise their dreams, taking a corresponding hit to their self-esteem. In Germany it seems this is still considered acceptable.

Eternally whingeing employers are also to blame – when I started work employers accepted that graduates coud not immediately be plugged into a job but had to be trained – for several weeks in the BBC’s case, before they could be let loose on the expensive and potentially dangerous equipment and expensive studio time. There seems to be a lot less preparedness among employers to train young people, and then some ghastly whingeing when it all goes pear shaped. Employers are entitled to expect that public schooling provides a decent level of literacy and numeracy. The rest is up to them, if they want degree courses better suited to their needs then sponsor them!

For all that I wish the A-level students all the best and good luck in your chosen careers. I can’t tell which ones of you to really congratulate, but that’s hardly your fault, and hopefully we will all find a way to sort it out in the long run.

The Pinch – David Willetts says it’s the Baby Boomers Who are Wrecking the Economy

David Willetts book The PinchDavid Willetts is clearly a very clever chap, and I learned a heck of a lot about the sociology and history of Britain from this book.

I’m part of the Enemy cited by Willetts as the source of a lot of the financial ills present and upcoming, though I am not yet part of the 50+ set he defines as possessing most of the wealth in Britain.

Reading the book was curiously frustrating and rewarding – Willetts is very intellectual, and his writing can be turgid.

His book was fabulous at detail and insight, and yet poor at the helicopter overview of the situation, and he laboured his points. I came to understand how high house prices in London favoured the Polish immigrants labourers against Liverpool labourers (the Poles are ready to sleep many to a room reducing their costs because they will use the money to set themselves up in lower-cost Poland later, whereas the Liverpudlians haven’t got that advantage).

It’s always going to be hard for me to accept that I am part of a sociopathic menace destroying the fabric of British society, but I just don’t feel Willetts carries his case well. For sure, the baby boomers have caused enough problems, however, I think he eggs his case far too much.

Take the classic bugbear, housing. I bought my first house at 29, and it really wasn’t a good move at all. Look at my age – older than many Gen Yers are trying to get a house nowadays, it took me longer in my career to get there.  People now don’t seem to be prepared to live in crummy rented accommodation shared with others in their young adulthood – I shared rooms, then flats, then houses for the early part of my working life. It wasn’t until that first house that I had exclusive use of a toilet and bathroom, whereas now even student accommodation is ensuite.

Some things have changed not for the better. I wish university were at the same penetration level as when I went there. Send only 7% of our young people to uni and we can afford to give the poorer ones grants. Send 50% to uni and we just can’t manage that. Are today’s students prepared to take the downside though – tougher exams that weed out the majority of applicants? It’s easy to point out the things that the boomers had going for them in their youth that people that same age don’t have now, but if you’re going to do that you have to also allow for the fact that some of these good things were nowhere near as widely spread as they are now!

The world of work has got worse, because of globalization and technical advances, both of which favour capital over labour. It is possible that the baby boomers can be charged with not seizing the moment, and directing our societies towards using the increased wealth to shorten the working week and give us increased leisure. Other than that, I don’t feel that the change itself was a result or creation of the boomers, it was a result of accumulated knowledge, better communications and capitalism red in tooth and claw. It’s not as if other political systems weren’t tried in the 1960s onwards, but market capitalism seemed to give the least worst result.

Other things, however, have changed and are better. The world is richer now, the anticipated loss of disposable income as we unwind the debt-fuelled party of 1997 to 2007 will still leave us with far more money, consumer trinkets and baubles than we had in 1987.

Yes, the boomers should have saved more in their middle age rather than pumping up house prices on cheap debt then blowing it all on consumer goods without paying the capital down. This hopefully should unwind in the coming years, and those boomers that believed prices would always rise will get to eat the crow; they have less time to earn the difference needed to fill the hole.

The boomer generation now holds most of the wealth in Britain because, well, after 40 years of working people get to accumulate some wealth. When I started work as a youth I also observed how it was always greybeards who owned everything – my landlords were greybeards, the bosses were, in those days bankers were. It didn’t seem fair to me then, either. Such is the human condition 🙂

Willetts book is a fascinating though difficult read, but more for a take on the unusual sociology and history of Britain. He certainly does come up with a litany of the boomers’ failures, but doesn’t quite carry the argument that it is a premeditated land grab in my opinion.

I do think there is some serious crap coming down the line, as a combined storm of resource crunch, growing population and energy shortages. Would it have happened if we had an even size of generations? Most likely.

Our problem, Mr Willetts, isn’t the size of one particular generation relative to the others. It is the increasing size of humanity’s population in total compared to the rest of the biosphere, and its impact upon that. We can address some of the resulting issues, but it isn’t going to be easy.

There’s an entertaining riposte to Willetts’ book from Boris Johnson on his blog, together with a response from Willetts and a comment that summarises Two-Brains Willetts writing style

Perhaps you talk better than you write, otherwise quite why Boris Johnson would want you at a dinner party is unclear – perhaps your cooking skills are more advanced than your light-bulb changing abilities? The article drags on and on in the most soulless fashion when the same points could have been made in a quarter of the wordage.

Banks Don’t Make People Bankrupt, People make People Bankrupt

There was a bizarre piece on Woman’s Hour today, asking how is it that so many women are going bankrupt nowadays.

One of the reasons advocated is that more women are exposed to the economy by being wage earners etc and that part of the argument is fair enough, there are more in the line of fire.

Then we had Alexis, who got herself into £31,000 worth of debt. Let’s take a look at some of her reasoning:

Jenni (interviewer) “How did it [your debt] get so high”?

Alexis “It got so high because I was able to borrow so much money”

WTF? Can this lady run safely with scissors, is she allowed to cross the road on her own?

Alexis “unfortunately, nobody put the brakes on me except myself”

Jenni (incredulous tone of voice) “Hang on, what were you spending it on?”

Alexis “Anything, I genuinely was shopping constantly, I had this attitude that life is short, and if I wanted it I should have it, and we do live in this society where we are told, ‘Look at all these worderful things you can have’ look at all these wonderful things these celebrities have got, and why don’t you have it and if you can’t afford it just borrow the money”

Prof Sheila Crispin then goes on to say that people think that “if the bank is prepared to lend me 20,000, then I must be able to afford it.”

Since when did adults get infantilised in this way? There are some things that have hidden risks that are hard to gauge and quantify. But there’s not much that is hard about spotting the risk of borrowing £1000 when you can’t see a way to paying it back.

I’m not talking about to people unfortunate enough to lose their jobs, or have other unforeseen financial events catch them out. This was a woman who sounded coherent, reasonably intelligent and who had finally seen the error of her ways. But was she raised by wolves? Why didn’t her parents teach her the basics

all advertising is a story designed to make you want to spend

I’m sick of people of both genders blaming the banks for making them overspend. Banks have made their own mistakes, and been greedy on their own behalf, but they aren’t a conspiracy to make us overspend. They held up a mirror to our own greed and lack of responsibility. We cannot blame the mirror if the ugliness of the reflected image disturbs us. A failure of macroeconomic policy and regulation made this worse, but nobody had their arm twisted by a banker in a balaclava holding a gun to their head, saying

borrow this £31,000 or we shoot your husband and kids

It just didn’t happen.

Greed is Good – are Animal Spirits returning to the Square Mile

I did some work in London this Monday, near St Paul’s. It was a pleasant day, so I walked down from Liverpool Street rather than taking the Tube. What struck me was for a country that was in danger of running into the second dip of a double dip recession, there seemed to be a lot of money sloshing around and how much buzz there was. Twenty and thirty-something guys with tailored suits and their hands jammed in their pockets or on the phone seemed to ooze brash bravado, set against the occasional refined clicking of designer high heels from pencil-skirted women.

people at the foot of the Gherkin
people at the foot of the Gherkin

The Daily Wail has an article spitting bricks about a party sponsored by Square Mile magazine, where bankers are living it up. While it makes easy journalism and pumps up the angry readers who are looking for someone to blame, I don’t share their angle one bit.

I’m quite glad to see they’re partying and chuffed to see banks are making money again. The reason is that as taxpayers we subbed the banks a shocking amount of money over the last couple of years. I’d quite like some of it back. Let’s face it, a profit wouldn’t be such a bad thing. In the end Britain isn’t going to become the workshop of the world again, we don’t have the skills. And yet, it seems, we have some animal cunning for the world of finance.

The near-death experience of the financial system does show that perhaps we want to be a bit more careful. In particular, the end of Gordon Brown’s tenure seemed to have an awful lot of money spent on stuff that wasn’t perhaps necessary, and Britain isn’t as rich as we thought we were. The banks and their problems were the lightning conductor that flashed over after the huge misallocation of resources, but I am not convinced that they were the cause of the financial crisis.

We borrowed too much on our credit cards, we did not pay off our mortgages, preferring to raise loans against the equity to go on holiday, buy cars and all the other trappings of consumerism. The banks  didn’t make us do it, they let us do it. They aren’t our mothers.

We need their recovery, both to get our money back and also to buy us enough time to work out what went wrong and how to forestall it in future. There is a theory that suggested that some of the excesses were due to regulations such as Glass-Steagall set in place in the 1930s but rolled back as the people who experienced the Great Depression retired from the workforce. The reason for the checks and balances set up eighty years ago were forgotten. Regulatory bodies had forgotten that financial crises do occur and tend to be all-consuming, and were hopelessly outgunned in terms of intellectual resource and publicity by the industry calls that it is different this time. It is never different this time.

The archetypal symbol of the BSD - Swiss Re's Crystal Phallus
The archetypal symbol of the BSD

Perhaps every generation needs to be reminded that capitalism has boundary conditions. We will have other problems to face in the years to come. I find some cheer to be had that the animal spirits seem to be returning to the City. Yes, the BSDs are louche loudmouths with execrable taste. But I’m glad to see them back. They are signs among others that our shattered financial system may be on the mend. I would rather the taxpayer makes a decent profit on what seemed to be an impossible bet, and accept the partying for now, than screw the whole sector down with heavy regulation and have it chunter along in low gear for years. Unpleasant as it may look, this healing process needs to be well underway before any of the benefits get into the rest of the economy.

Of course, we would do well to work out what exactly it is that we want of a financial system. Perhaps we do want to separate investment banking from what used to be called retail banking. However, as the Iceland banks debacle showed, retail depositors cannot discriminate risk that well, so the bad drives out the good when there is a government bank deposit guarantee. If we don’t want to bail out banks in the future, we may have to accept our responsibilities and be prepared to lose our savings if we chase particularly high interest rates.

This is just hearsay, of course, my subjective impressions of a sunny couple of hours in the City. And yet some of the figures show that life stirs anew in the Rough Beast, its muscles rippling as it feels the fires of Mammon once again –





seems a straight flush, covering most of the big British banks.

Sir John Grieve, former deputy governor of the Bank of England, says pretty much the same thing on the Today programme

“the bank results are good news, we stepped in to rescue the banks in order to put them on their feet so they could make a profit, so we shouldn’t complain when actually we succeed.”

the Crystal Phallus looms large over
Size matters - Mammon is bigger than God in the City of London

My Escape Plan

Like anyone aiming to quit paid employment, my escape plan has a large financial component to it. However, reading Dreamer’s inspiring story of how she has made her plan real, reminded me that there is also a non-financial part of it too. People do not live by bread alone, and I have consolidated a lot of the intangible parts without considering them as an escape plan.

You have to take a view on what the future holds to execute an escape plan. The reason is that leaving paid employment means an enormous loss is power and direction – relying on capital rather than income means my trajectory is largely determined by what I have when leaving. There is little chance to make mid-flight corrections.

My vision of the economic future

I have a quandary here, because my view of the future is at significant variance with a lot of people, including some people whose view I respect. I am not sure I am right. The general view, which is that the turmoil of recent years has been a temporary aberration of the sort that occasionally afflicts capitalism and normal service will be resumed shortly, is at variance with my feeling that the myth of our time, continuous growth, is about to fail us.

Worse still, I have insufficient information to get a feel of when I expect the increasing world middle class population’s demand to exceed the limiting effects of peak oil.

I may retire, grow old, see a few more economic cycles and hopefully die peacefully in my bed before world demand overwhelms peak oil. We may solve nuclear fusion before then, though energy security is not the only hazard humanity faces. Something else might turn up – one of the bewitching aspects of the continuous growth myth of our time is that just when things seemed lost, so far something has turned up, like the mid-20th century energy-fuelled Green Revolution in agriculture.

In that case, investing to set myself on as best a path to deal with peak oil is a serious opportunity cost. I need a stake in business as usual too, so I choose to play both ends – invest effort and skills in the post-peak ready scenario and at the same time I hedge this by investing assuming that Britain is booming again – or at least not taking on too much water.

If you want results fast, use great force with extreme prejudice

Yoda, he of the sticking out ears in the original geek-fest Star Wars was a plug-ugly sucker, but he had a point when he berated somebody “do or do not. Do not try” If you want to retire early, you aren’t going to be living an Ozzie and Harriet lifestyle. You’re just not going to get there clipping coupons and skipping lattes at Starbuck’s.

I realised in 2008 that working in an office is not the way I want to spend the rest of my life. Some events before then had made me re-evaluate things, but being targeted by some punk at work to make up his numbers showed me that the world of work had changed somewhat since I started. I wanted results, and I wanted them in years, not decades. Months would have been even better 😉

Extraordinary results demand extraordinary efforts. That means cold turkey on consumerism, it means less is more all round. You need a lot of capital to retire early, in the order of about 20x your outgoings. None of the ways I can think of doing this don’t involve a serious hit on lifestyle compared with most others. The secret is to spend less than you earn, big-time. It means saving well over half my take-home pay, and a fair amount of my pre-tax pay too.

Young people may want to consider working in some unpleasant environment abroad for a year or so; these are usually financially rewarding to compensate for their unpleasantness or cultural dislocation. There are plenty of people that made their fortunes in the oil service industry, or working in the Middle East, where as long as you can avoid trouble and stay off the hooch then you can be made in a year or two. In the past, the military offered opportunities to break the mould, like this report of working 19 months on the Cold War Distant Early Warning Line.

The common thread on all of these is that if you want to build up the cash to do something different to most of your fellow men then you have to live in a different way to them.

The same applies to me. With two-thirds of a working life behind me, I have built up some capital, by living differently to many of my colleagues – my house is a semi where most of them live in detached houses, and I paid off my mortgage over the years rather than extract the equity to buy more house or go on holidays. But it’s not terribly different from the typical middle-class lifestyle. So if I want to retire early, then I have to hit the financial goal hard. Jacob from ERE tells us that it is possible to achieve early retirement in five years. With similar determination, therefore, in theory it would be possible for me to achieve it in less than two years; I already have 2/3 of the amount saved up in the conventional way plus a paid-off house.

Non-conventional investment – the tin hat portfolio

So my escape plan has two parts. The tin-hat portfolio finds a good meeting with DGF’s life-long dream of becoming a commercial grower using sustainable, low-carbon permaculture. I don’t understand it at all, I was born in a city, I am not into the digging and planting and harvesting side of things.

However, I can invest some skill and energy in the construction of things that every grower needs, like cold frames, buildings, energy control systems and temperature control. As well as the satisfaction of creating something tangible at the end, a reward absent from too many modern jobs, it improves the efficiency of the land use and effort.

As well as this some capital assets like polytunnels and the like which extend the growing season or make exotics possible give me a return on capital, which is the hardest part of turning savings into income these days. Businesses can turn capital into income. From a tin hat POV this particular enterprise hedges some kinds of hit to the food supply and rocketing food prices. I would find life as a vegetarian lacking the finer gastronomic things in life, but it would keep the wolf from the door. It also takes us out of the money economy for some our own consumption. Obviously in normal conditions it puts us more into the money economy from the produce sales, which is the right way to be in the money economy – a producer, not consumer 🙂

This unconventional part of my portfolio therefore also does something for me, even if I am wrong, Peak Oil is a chimera and things carry on as usual. It will also be interesting, practical and fun at times.

The general problem with saving money, turning it into a non-financial capital asset such as a business or property, and trying to live off the return on the capital is that many capital assets come in large illiquid lumps.  These have to be sold to realise any gains. Take, for example, a house – it may have gone up to £100,000 but to realise that you have to sell it to someone; even if it’s a buy-to-let property there are serious transaction costs. If you just happen to need £20,000 then you have a problem, you now have to find a smaller property to preserve the £80,000.

This is why most people use financial assets to do this job, but under certain scenarios those financial assets get written off to virtually zero. I do not feel that the probablility of those scenarios is vanishingly small over the next 30 years.

I used to know a very old person in Germany who had lost their life savings in financial crises – twice. When you hear the tone of voice of someone who has known that, you get a different kind of knowledge from reading about it in a book. You understand that the thin line that holds the edifice we call finance has its limits, and under certain kinds of societal stress it may fail under the load.This is usually more of a problem for people who have capital in financial assets than those living on earnings.

This collective memory underpinned the peculiar German abhorrence of inflation and the preparedness of the Deutsche Bundesbank to pay almost any price to keep inflation of the Deutsche Mark low in the 1960’s and 70s when other European countries let it rip – all the way to 26% in the case of the UK.

In the West we have been fortunate to have lived through a benign financial environment since the Second World War where this hasn’t happened recently. However, it has happened elsewhere in the world over that time – Argentina, Zimbabwe, the USSR, the Asian financial crisis in the 1990s.

The conventional portfolio

The second part of my portfolio is more conventional. It consists of a mix of ETFs, ETCs and investment trusts. I struggled with the latter, as these are actively managed and I have endless repetitions of the passive investing mantra to get over.

FWIW I’m unconvinced that continual pound-cost averaging works. Circumstances and luck have made me a pound-cost-averaging buyer when the market has been low and a forced seller when the market was higher than average. However, until I had a need for an income I found the index fund approach the easiest to have success with.

However, investment trusts have a good track record of paying dividends, and these are useful enough for a spread of ITs to give me the income I want to top up my pension, with the advantage that if I do it in an ISA it is not treated as income so I don’t get taxed on top, though dividends are taxed at source in the bizarre tax structure of the UK.

They seem to have the advantage of the income being stable over the long term. I don’t want to fret about investments and keep on churning them to release an income, so I will shift slowly from ETFs. High-yield ETFs such as IUKD that I was using are skewed in composition by the need to chase yield, which is a side effect I hadn’t thought about and didn’t want.

The largest part of my conventional portfolio is my final salary pension. It performs the position that bonds do in a self-select pension, a reasonably stable investment. However, since it is from a private employer, rather than government-backed public sector, and there is a deficit, I don’t consider it risk-free. Therefore I will draw it early – which will reduce the annual income from the pension since they will be paying it for more than the 20 years they expect me to live after 60. That means that I get some of it out before any risks/threats to its financial stability, and it is why I need to adopt ERE’s approach to saving enough capital to top it up.

Since pensions are considered income and taxed, drawing early means I get much more of it before paying income tax, which is all to the good in my view. My top-up income is derived from ISAs, which are not currently taxed, so I aim to pay minimal tax. I have paid an awful lot of income tax in my 30-year working life, and I’ve had enough for a while. I have done my part for society. If I get a State pension at 68 that will be nice, but I’m not counting on it, by then I expect the UK economy to be so hammered they’ll turn round and means test it or scrap it as unaffordable.

So I have a decent amount of diversity in my investment structure, in terms of the nature the investments and the spread. I can lose one of the three elements without going broke, though if the pension goes bust I may have to run down capital elsewhere.

The main problem with my escape plan is that the escape is two years off. I will have been at it for three and a half years by the time it comes to fruition. Saving 70% of one’s income is difficult to live with – I have the downside of a job with a toxic management structure without using the upside of the money. The halfway point is a nasty part of any difficult project – it is easy to lose hope, since the distant shoreline is not in view and yet much of the losses have been committed without return.Like Dreamer did, I continually re-evaluate if I can shorten the gap, but the maths do not change when revisited.

Finance is only part of a good escape plan. I am not a minimalist, and a big part of quality of life is who you are with and where you are as well as what you have. I have made good progress on these areas over my working life. In that I am different from many ER bloggers, who are sometimes discontented with their situation in life as well as finances. Much of that is simply being older. Getting these aspects of life right takes a lot of time; my 20s and 30s had much angst in them too 😉 I suspect some of that angst is part of the human condition.