Thursday, 30 September 2010

The Rules of Capitalism and the Jobs of the Future

I've been meaning to write this post for more than a week. But now, in the wake of Vince Cable's controversial speech  and just before the Conservative Party conference is actually a better time.

Cable's critique of capitalism has met with some very mixed reactions. And some surprising ones too, not least from the Daily Mail and some of its more rabid commentators. This is in large part down to the banking crisis and the continuing arrogant and astonishingly impolitic behaviour of the banks and the City of London in general. For masters of the universe, weighed down by their various degrees in addition to their vast earnings, they can be remarkably stupid at times.

I am not about to defend the worst excesses of this group. Many of them richly deserve the opprobrium heaped on them and a politician of the left can hardly be blamed for heaping on more during his party conference as he tries to reconcile, to himself as much as anyone, his presence in government with Tories. And, as I pointed out, his assessment of capitalism was pretty much right. It does behave in the way he characterised. That is both its strength and it weakness. The difficulty is what government can do about it. The rhetoric of Cable last week may turn out to be a serious signal of intent. On the other hand, like Gordon Brown before him who promised while in opposition to address the scandal of the tax avoiding non doms, it might just be rhetoric since he knows there is little that can be done. The City fat cats can move. They stay in London for lots of reasons but mostly because it is London. As such they can put up with political rhetoric. Ever higher taxes are a different matter. As has been demonstrated time and time again, higher taxes actually lead to lower revenues in the end. Politicians may not like it and may hesitate to say it, but it is demonstrably true.

But it is wider issues of capitalism I want to come on to, specifically with regard to where jobs are going to come from in the UK as the public sector is shrunk. The government hopes that the private sector will pick up the slack if our tax regime is in their favour. Cable made the point that there are sectors in which this country still excels, such as high tech manufacturing and the creative industries. We should also include banking, insurance and financial services. But all of these industries are prey to the same principles of capitalism. Britain is competing in a cut throat market for jobs and industries and, like many advanced and developed western economies, we have been losing out.

It is one of life's ironies that one of the great beneficiaries of competition and capitalism's endless search for lower costs and higher productivity over the last ten years has been a communist dictatorship. The inexorable rise of China has been the economic story of the 21st century. It has been in large part responsible for our low
inflation but also for the consumer bubble on which so much of our growth was based. Latterly it has been lending us the money with which to buy its exports, a vicious circle with no end. The west, with our insatiable appetite for cheap consumer goods, has been responsible for an economic miracle which has propped up a nasty dictatorship. In turn that dictatorship is rewriting the rules of trade. The huge power that nation now has enables them to dictate terms to companies and whole countries. Furthermore they have consistently frustrated western diplomats trying to rein in some of the world's other nasty dictatorships by doing deals for oil, raw materials and other goods and bypassing the west altogether. Any deals with such countries or deals on international issues like climate change are impossible because of Chinese attitudes and concern only for domestic growth and their own retention of power.

But just as  importantly, the rising economies of the east with their lowers costs, higher productivity and vast populations willing to work for low wages has meant the decimation of much of western industry. This was a process which started long before the rise of China but one which has now accelerated  and looks unstoppable. Vince Cable's critique of the problems of untrammelled capitalism are apposite here on an international level. The difference is that at this level there is little we can do other than become protectionist, a course being actively considered right now in America which has suffered more than most.

Many of the problems of our economy and in wider society can be traced back to the days when industry declined in this country. Industries which would once have employed hundreds of thousands of working class men (they were almost always men) with moderate or low educational attainment are no more. Where once those men would have gone out to work at 16 and earned very respectable wages for their whole lives enabling them to get married and start families, now all too often they are in low paid, insecure jobs or spend long periods and often their whole lives unemployed or in and out of work. It has bred poverty, benefit dependency, crime, anti social behaviour and a next generation who see worklessness as the norm. It has been a social disaster.

Ah yes, nod many on the left. Thatcher! And yes she has to take part of the blame, although the industries that closed down in her era had already been decimated by union militancy, bad management, outdated practices, low investment and only survived thanks to public subsidy. But it is a decline which accelerated under Labour and which no politician is addressing to this day. Indeed we are even now closing down steel works and other heavy industry and exporting it lock stock and barrel to the east, either because they have the money to invest or because our idiot politicians engage in schemes to cut our carbon emissions through cap and trade. What must they think of us when we pay them to put our factories out of business and throw working men and women on the dole?

This week we heard lots of talk from Labour about wealth creation and the distribution of that wealth. But that is precisely why they fail. What we have done well in the UK is in the areas that Labour knocks. Banking and finance and its associated service sectors have been what has saved the British economy from ruin. Yes they have sometimes been guilty of hubris and greed but then so were those who brought down our industries in the 70s and 80s. We should be applauding this phenomenally successful part of the British economy and learning from it. Yes it needs regulating but the mistake is to think that it needs more regulation. It doesn't. It needs better regulation and supervision than the system set up by Gordon Brown when he came to power.

Britain has become very good at doing things which require brains and creativity. This is a trend to be nurtured and encouraged. Instead politicians carp about it and raise their taxes talking about equality and fairness but forgetting, just as we did 30 years ago, that we live in a competitive world and that whole industries can be lost in the blink of an eye if politicians interfere and talk about fairness and try to impose it with blunt instruments like ever higher taxes.

We need to encourage our banks and service sectors, we need more bio engineering firms and high tech manufacturers. Why hasn't Britain created a Google, Facebook, Microsoft, Nokia, Apple? We need to compete for the best brains by lowering taxes, awarding innovation and enterprise not by envying it and talking about how terribly unfair it is that someone has become stinking rich by being clever. Why is that politicians never complain that footballers becoming stinking rich thanks to their ability to kick a ball or run fast?

But we do also need to address the problem of the millions of people who need good, secure and well paid jobs who would once have worked on factory assembly lines or in other semi skilled jobs in which they took pride and which gave them a circle of friends and a stake in society. The answer is not to tax the rich but to stop taxing the poor, to encourage them and if necessary push them into training and education. We also need to encourage firms to invest in this country and employ them. We can still do it. There are factories here, foreign owned now sadly, which make top quality, well made cars that the world wants to buy. Honda, Toyota, Nissan, Mini, Jaguar, Land Rover, Aston Martin, Rolls Royce and Bentley. These are all built here. They are all world class products made to the highest standards with world class productivity levels in state of the art facilities and with cutting edge design.

Only by making things that people want can we earn our living and create the wealth which percolates through the whole of society. Which is better, to hand people a few extra pounds to take them slightly above some arbitrarily drawn poverty line, or to train them to do a job which pays well and gives them pride and a reason to get up in the morning? The rewards of work are not just a pay packet, they are better health and mental health, pride, social connections and yes the ability to buy the latest must have gadgets, live in nice homes and take a holiday or two. There are thousands of people who don't appreciate that because they have never experienced it. They are poor in a way that a few extra pounds handed out by government can never cure.

And how do we accomplish this new utopia? Simple, we adopt the principles of capitalism. We compete with the rest of the world. We adopt their working and management practices, we cut our costs. We emulate them and beat them at their own game. We get our companies to question the sense of manufacturing their goods on the other side of the world and sailing them back on vast container ships at high cost when they can make them here and get better quality for the same or similar price without the transportation. Why are we importing so much food when our land isn't being used to its maximum because of ludicrous rules and counterproductive subsidies? Why have we allowed the supermarkets to push farmers out of business by demanding prices so low that they cannot make a profit? We then have to import the same food? Is that an environmentally friendly approach?

Where government needs to intervene lets do it smartly. If we're going to have green taxation let's levy it on companies which bring goods from China for no reason rather than on industry which manufactures nearer the consumer. We are actually penalising our companies for not being green enough and then importing from foreign companies which aren't green at all. I'm not advocating tariffs and trade wars but we do have to stop making it so hard for our manufacturers to compete.

China famously builds a new coal fired power station every week. Less famously it has 3 of the top 10 wind turbine manufacturers in the world. So not only are we erecting hundreds of these expensive and pointless machines all around our green and pleasant land, we are importing them from a country which is still churning out CO2 in ever greater quantities Are we mad? They must think so but are too inscrutable and keen on taking our money to say so.

If we must have green taxes (and the consensus on that is fast disappearing) then let's make them smart ones and ensure that they don't give our competitors an ever greater advantage than they have already. And if that still isn't enough then cut corporate taxes to compensate. In a globalised world we have to compete with those who are willing to do whatever it takes.

It is possible to do all of this. They do it in Germany which remains the 2nd biggest exporter in the world only recently surpassed by China, a country with ten times its population and without any of its costs. And, though Germany has a trade deficit with China just like the rest of the world, its trade gap is much narrower than everyone else's. Some months it even runs a surplus against the mighty wave of red exports.

How has Germany achieved this? By making high quality goods that the whole world, even China, wants. It does so by manufacturing goods efficiently and at the lowest possible cost. But most of all Germany is a by word for quality. There is no reason why Britain can't be too. We already are in many areas. Why did German firms want to buy Rolls Royce, Bentley and Mini? Why are Rolls Royce aero engines the best in the world? Why are so many Formula One racing teams with their cutting edge technology located here?

But we have other advantages too. One of the reasons that the City of London thrives is because London is one of the most vibrant and exciting cities in the world. People want to come here and work here. And the same is true of Britain. This is a country with many benefits. It is a stable and established democracy with all of the infrastructure of a modern country and very little corruption. We are also a tolerant country largely at ease with ourselves and outsiders. Crime is under control, violence though there like in all countries is low level. Culturally we are world leaders in television, theatre and other performing arts. Our football clubs are world famous. We have world class healthcare even if it sometimes creaks at the seams. Our universities are amongst the best in the world and science has been and remains something at which we excel. Even our weather, though we complain about it, is actually conducive to a good quality of life.

In short, this is a great country to live and work in. We are world leaders in so many things. We ought to take a little more pride in ourselves. For a little island on the edge of a continent, we punch above our weight and have done for centuries.

The political talk in recent months since the election has been of relentless austerity, cuts, recession, gloom and doom. Now, as David Cameron prepares to give his first conference speech as Prime Minister, it is time for him to do the vision thing. The cuts have a purpose, to cut the costs of government and to free up the economy. But the vision must be for more than that. We as a country need to be prepared to compete in the world and that means utilising all of our natural advantages and creating them where they don't exist. It means a competitive tax regime and a regulatory structure which encourages and nurtures innovation and enterprise.

And perhaps it is also time for Cameron to take a lead and to take on the great leviathan of China which is beating us at our own game by cheating. China is using its muscle to take our jobs. It is manipulating its currency to take an unfair advantage. It is not allowing equal access to its own economy for our firms but is trying to buy up ours or to steal or otherwise acquire our precious intellectual property. It is also slowly and quietly building up monopolies in certain areas which the world needs. Nobody knows much about rare-earth metals but we all need them in our phones and computers and other similar technology on which we all rely. China, with perfect capitalist instincts, now controls 99 % of some of these minerals. Is that not alarming? If a company did it someone like Vince Cable would rightly kick up a stink.

Cameron should state firmly that he believes in free markets. But he should also invite our fellow free trading nations which play by the rules to join him in concerted action to prevent China from abusing its power and increasing its wealth by unfair means. China wants continual growth to keep its people in work. Well so do we. It's time our politicians said so and started acting as if they mean it.

When Vince Cable made his speech the other week it was largely an exercise to play to his party gallery and show them he was still the same old Vince. But his points about capitalism were apposite and largely correct. Where he was wrong was that his remedy was more taxes and punishing the successful. It is fine to stop the banks gambling with our money and endangering the whole economy. But it is not fine to hit them for party political reasons and hobble the whole economy.

 It is time we realised that we as a nation are competing in a world market. We need to emulate the best and learn from them. But we also need to recognise that democratic nations are at a profound disadvantage against those who operate without accountability or principle. They can move more quickly and decisively. The only way to beat them is by acting together for the greater good and if necessary denying them access to our markets. America is already talking along these lines and we and the rest of Europe should join them. That is our power and it is one of overwhelming force.

The Wealth of NationsAn Inquiry Into the Nature and Causes of the Wealth of NationsThe Wealth of Nations : Books 1-3 : Complete And UnabridgedThe Wealth of Nations: With a Foreword by George Osborne, MP and an Introduction by Jonathan B. Wright, University of RichmondThe Ascent of Money: A Financial History of the WorldColossus: The Rise and Fall of the American EmpireHigh Financier: The Lives and Time of Siegmund WarburgEmpire: The Rise and Demise of the British World Order and the Lessons for Global PowerThe War of the WorldCapitalism and Freedom: Fortieth Anniversary EditionMoney Mischief: Episodes in Monetary HistoryFree to Choose: A Personal Statement

Who's the Kid at the Lectern?

The latest polls and a Newsnight focus group have been fascinating. Forrest is getting no conference bounce. Even Gordon got one of those.

Instead it seems that, though party diehards claimed to have been thrilled and excited by their new leader, the public are less than impressed by this cult of youth and the new generation. Now of course he hasn't told us any policies yet but then his policies are going to be more of the same plus higher taxes. How do they think that is going to go down?

Forrest and his advisors were anxious to avoid the tag of Red Ed. But what they can't avoid is this impression of this extremely young and inexperienced man who has got the job only five years after entering parliament. It is idiotic. Now perhaps he will be able to change that perception but it is hard to see how. Maybe he should hope that the stresses of the job age him quickly. But just for good measure I would advise him to put some grey in his hair and start smoking to bring his voice down a semitone or two. Maybe he should start being seen with a pipe like Harold Wilson. It's just a pity his government banned smoking. Or is that another assault on civil liberties he now wants to disown?

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Wednesday, 29 September 2010

Miliband Is Leaving To Spend More Time With His Family - Oh No Hang On

Weasel words and evasion. It was bound to be this way but it's still irritating. We all know why  he is going, it would be nice if for once they could respect our intelligence and just confirm what is blindingly obvious. There is nothing wrong with people in politics disagreeing with one another, even members of the same family. Mili senior confirmed it during the leadership campaign. So why not just say it now? Do they really think this draws a line under things? Do they really think this is the end of the body language and textual analysis?

Little Milly does not want to serve under Forrest. Who can blame him? Forrest is in the process of undoing all that Little Milly still says he believes in. So that's a good reason to go to the backbenches, quite apart from the fact that the little shit stabbed him in the back and conducted a dishonest and disreputable campaign which he is now furiously recanting.

Forrest insists that he is leading a new generation. In fact he is just a junior member of the old generation now pretending to disapprove of the old fashioned ways of those he worked for. You can see why they are irritated.

It would actually be better for the party if they could freely acknowledge that there are disagreements but that the party has spoken through the democratic process. It would be cathartic. Instead resentments are being taken to the back benches where they will fester and grow and the media will pick away at them like a persistent scab. For now Forrest will have a honeymoon period. But waiting behind him will be the members of his generation whom he now regards as fit for their cardigans and slippers. The whippersnapper may yet get his comeuppance. A new Labour soap opera between competing brothers is starting again.

It's doubtful that Little Milly is really heading off into the sunset. This is a strategic withdrawal to lick his wounds and await events. There may eventually be sniping from the sidelines. For now he says he is reluctant to give us headlines, but that just means we know what he would have said if he wasn't in loyal and caring brother mode.

The usual formula for these things is that the minister or shadow minister is heading off to spend more time with his family. If he does let's hope for their sake it isn't televised.

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