Morning...
It should have become quite clear to many that the last ten years plus of 'economic prosperity' has literally been built on sand. Unfortunately the unpleasant side-effects are going to be felt for some time. My forecasts last year and our forecasts earlier this year (way before many others) do seem to be bearing accuracy.
However, it is becoming clear that when you look at the current problems with those over the past 40 yrs +, it (I believe) becomes obvious that we have really been lacking a coherent economic strategy that delivers/sustains long term gain (long term here being anything over ten years). It also requires a government to execute this. Sadly both have been lacking for far too long.
At the heart of any economic strategy is a human capital strategy. Prosperity can only be built on wealth creation supported by good infrastructure and beneficial social policies.
Wherever you look we have imbalances. Negative country budget (despite raising over £600 billion), personal taxation, corporate taxation, purchase taxation, pensions, real estate, industrial base (too much reliance on finance, for example), risk/reward for SMEs, structural unemployment, inefficient resource allocation from public budgets, foreign reserves..the list goes on and on....
Given our rich trading and enterprise heritage the question is - how did we get here? How have we managed to get it so badly wrong?
Getting back to basics
First, the industrial base. What are we competitive in on the global stage? Good question. We seemed to have let the whole IT industry by over the past thirty years. Manaufacturing - bit part. Engineering - good but small. Finance - world leader apart from falling off a cliff. Pharma - good but in reverse. Various services but.....
At home we excel at retail, tourism, and real estate (driven by Ponzi schemes). See the problem....
SMEs (small and medium-sized enterprises employing under 250 employees) are the lifeblood of the economy. The Government thinks that a good way in a recession is SMEs to borrow more!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! It's the last thing you want to do. Focus on the business model and your current clients. PERIOD.
Regional problems
The more North you go the more reliant the regions are on public sector funding to the extent that some regions in North East and Scotland are predominantly funded by tax revenues. Taking this support away would mean society would collapse in these areas. This is very unhealthy and very dangerous long term. Even private enterprise becomes reliant on public funds to exist. (This is not very different to the Soviet style economy that eventually collapsed). The latest of course is in the banking bail-outs which seems to have been missed by media comentators. Something needs to be rethought and quickly otherwise more building on sand........
Unemployment
What a waste of human capital. But then we've never had a coherent human capital policy. We are still trying to understand the value proposition of universities. Gosh they've only been around for 800 years. We've got no end of well meaning funded training but how effective is it? Consider the amount of money poured into construction training schemes over the past few years (see Carter & Carter. IiP etc) only for them to be squashed under the latest reverse. Was this really efficient use of public funds? Think of the alternative investments...
Also bear in mind that regional public employment can hide the true picture of potential unemployment.
Pensions
Disaster area whichever way you look
Taxation
How did we get here? The propensity for fraud/circumvention with the myriad of schemes means simplification will help. Wealth is created for all through low taxation not high taxation. A massive overhaul is well overdue. As for VAT - what is it's purpose?
If the government wants to help at the moment then I suggest getting rid of VAT from utility bills will be a good start. Getting rid of NI employers contribution (that's the double whammy companies have to pay on top of everybody's NI contribution) would be well, well overdue. (This kills SMEs and is a massive barrier to hiring employees). It's a truly shocking tax on jobs.
In terms of renewable energy sources, we've been receiving billions of taxation as a way of investment through the fact that petrol in this country has a levy of around 80% tax. What have we been doing with it?
As for real estate - anybody want to know why a bubble is created? Well taxation. It is one of the rare times when people are not taxed on capital gains (save for the incredible stamp duty up front!). Not only that but we have further tax incentive schemes for commercial real estate such that we tie it to pensions. OH DOUBLE WHAMMY!
But interest on savings - oh, no they're taxed (having already been taxed). YEP - sound fair?
I acknowledge that any fundamental change in taxation needs to be carefully thought-through and modelled and implemented in transition phases (which makes me wonder how many previous taxation changes went through this process).
Unions
Today's world rightly focuses on equity for all and informed debate. Sadly too many Union messages seem to lack both of these. Thus Unions also need to look at their value proposition and contribution.
Venture capital/Private equity
The VC market is still grossly inefficient and just as bad as any public sector funding for misallocation of resource. A lot more needs to be done (and is) in this area. As for private equity (or very public debt as it should be known) most of these investments have nothing to do with SME development.
European Union
From an economic perspective it's nothing more than a basket-case. In terms of one market we moved very little - a bit like the WW1 trench lines.
Either we crack heads unilaterally or best leave each country to pursue its own bilateral economic relationships under the natural geographic closeness/trading and at least save all of the wasted billions into something more useful.
Leadership/Management
You know my beliefs on this one. People Engagement and Productivity is key to any nation's prosperity and yes - its survival. If there's any nation who should get this right more than most then it's us. But we still seem to be stuck in the 1950s too often. And that's despite the billions spent on leadership/management development annually. Not exactly a glowing indictment.
Once you've got one - you've got to execute
So having an economic strategy is one thing. Executing on it is another. Observing and listening to those currently incumbent in various supposed governing bodies leaves you with a decidedly 'less than competent' feel. We seem to reward 'sleeping at the wheel'. It would also help if this country at least taught the basics of economics to all in whatever curriculum is chosen. An educated electorate (and for that matter, the media) ceratinly helps when it comes to managing a nation's economy.
And finally...
Just in case you didn't notice a certain election happened last week. My congratulations to Barack Obama. A truly momentous result. I trust that it is the right one for the American people.
My real concern is that he (despite his best efforts) will not match the truly incredulous expectations. It is not the second coming as some seem to think it is. Give the man some room. But at least 'The American dream' is at least alive and well.
Compare this with the cretinous comments by our very own Trevor Phillips.............
