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We were running on empty... now it's time for real growth

postdateiconFriday, 02 July 2010 12:27 | PDF | Print | E-mail
Yorkshire Post 08 January 2009
THE argument that we should lower interest rates, to even zero, as a solution to our economic ills seems absolute madness to me.
It's a bit like trying to put a fire out with gasoline. I think we should increase interest rates, or certainly leave them at a level that provides savers with a reasonable rate of return.
I am sure most people above the age of 50, and certainly those of retirement age, would not want interest rates to fall any further. Most people in that age bracket will suffer massively from lower levels of interest. They are the people who have been sensible, put aside some money and are now trying to supplement their pensions and, perhaps, patchy periods of work, with investment income. They are now seeing that investment income being reduced to virtually nothing.
I also cannot see why anyone aged up to their mid-20s would see any particular benefit from a low interest rate policy. I agree that those who fall between those two age bands, and who want to buy a house, might welcome lower interest rates.
However, surely, having witnessed such volatility and instability in house prices and in employment, the best course of action for many younger or middle-aged people would now simply be to rent property until circumstances stabilise somewhat. Prices may well become quite affordable if people are prepared to wait a couple of years.
What the Government should do is increase interest rates so people can try and save up a deposit, as was the case many years ago. Reducing interest rates to enable people to borrow is precisely the way we got into this mess in the first place.
I also don't accept that interest rate levels are that big a factor in decision-making in businesses. Businesses are not really going to put off a decision to expand their activities just because interest rates are one or two per cent above what they would prefer.
The decision to invest is more about how innovative a business idea is and the ability to ascertain demand for the product. Some major UK businesses were established during the very dark days of the 1970s, such as the Virgin empire. Business success is all about entrepreneurial instinct and it is never going to be stimulated by government policy.
You simply cannot be serious if you are suggesting we should encourage borrowing just to stimulate house-building. We desperately need to have another way of creating wealth in the UK other than the borrowing/house-building spiral.
The fact is that the UK has been "running on empty" for far too long. What we must do in this country is stop borrowing. For the last two years generally, the UK's population has owed more to the banks than the value of everything made by every office and factory in the country.
This shows how useless GDP "growth" is as a measure of our financial wellbeing. "Growth" has unfortunately become largely a measure of how much money we're all borrowing. I doubt if there has been any real growth in the economy for a long time.
Mr Micawber had it right: if your annual expenditure exceeds your income – then you're in trouble. If you have a few bits of wood and you make something out of them and sell it, that is real growth. You have then turned some raw materials you already owned into something which you can sell.
To achieve real growth, we should all rely much more on building up businesses slowly, which utilise our raw talents, rather than expecting to be able to borrow huge amounts of money. We have all believed too much in the culture of the "quick win" when, in fact, real sustainable success can only be achieved through a long slog.
The availability of credit has incorrectly become thought of as the only factor that can enable success. It is true that you can make money by borrowing and investing, but it is far more prudent to try and make something out of what you already have and slowly build up real wealth.
Most certainly, what we should be cutting is taxation. Hard earned pay belongs in the pockets of those that have earned it.
These days, there is very little incentive to work hard. That fact is a much bigger part of this downturn than our political elite are prepared to admit. I would take a lot of persuading we can't make huge cuts in public spending.
How about, for instance, cutting all these quangos, whose only purpose appears to be advising people on what type of public grants businesses can apply for?
The expectation that we should have continually low interest rates just punishes the prudent and rewards the reckless. It is yet another example of the minority being expected to support the majority.

Yorkshire Post 08 January 2009 


THE argument that we should lower interest rates, to even zero, as a solution to our economic ills seems absolute madness to me.


It's a bit like trying to put a fire out with gasoline. I think we should increase interest rates, or certainly leave them at a level that provides savers with a reasonable rate of return.

 

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Our disappearing breed of wealth creators

postdateiconFriday, 02 July 2010 12:16 | PDF | Print | E-mail
Yorkshire Post, Published Date: 22 November 2009
Far too many people are now sheltered from the realities of wealth creation in the UK. Where is this going to lead us?
The population of the UK will rise from 61 million to 71.6 million by 2033 if present trends in growth continue, the Office for National Statistics (ONS) has said. This will involve a huge increase in the elderly population. Additionally, more than two-thirds of the increase is likely to be related directly or indirectly to migration to the UK. The proportion of people engaged in productive private sector employment is declining.
We are told we need immigration to help to pay for the retired. However, there is no strong evidence to suggest that immigration makes a positive contribution to the economy, particularly as immigrants often, soon after arrival in the UK, become state dependents themselves.
Why do we insist on making life so difficult for those who are trying to create wealth? It seems we will always listen to civil servants, bureaucrats, academics, politicians, journalists and spin doctors, but we will never listen to those at the "sharp-end" of business.
This sharp-end is facing serious difficulties. For instance, more and more of our lives are now dependent on information technology and we need that IT work to be done to the highest standards. The UK is a country dominated by the service sector. This kind of sector is very reliant on IT. If IT quality deteriorates, so will the quality of our lives. The wrong information can often lead to disaster.
Unfortunately, we appear to be treating IT like coalmining and shipbuilding. We are giving up any hope of doing it or even managing it ourselves and handing everything over to the "offshore brigade".
We accept whatever they deliver, regardless of quality. We are therefore leaving ourselves dependent on others for increasingly vital strategic elements of our own economic and social infrastructure. Basically we don't care about real quality in the UK any more.
It seems that many in the UK and the US don't subscribe to the more European view that high quality "sells itself" based on prestige and reputation, as seen with Mercedes, for example. In the UK we are undermining all forms of testing and turning them into toothless, rubber stamping exercises.
Over the last 12 years, we have seen a major shift away from traditional views of quality towards "progressive" views. The progressive school proposes we move away from formal objective testing towards a continual assessment style testing system, which as we have already experienced, has led to a decline in standards. For instance,
A-levels are now two grades easier than 20 years ago. An additional feature of the progressive approach is to turn the teacher-pupil relationship around so we start to view the teacher as being responsible for the pupil's failings.
So, how are we going to pay for all these people who will be dependent on the state?
Statistics often assume the productive working life is from 16 to 64. In reality, there is a much smaller window of opportunity to have a tax-paying productive career. This is due to the growth in university places and our apparent obsession with becoming overqualified.
We can often expect students, having completed their long haul of degrees and postgraduate qualifications, not to begin any productive, tax-paying employment until their late 20s. Even after all that education, very few end up starting any significant wealth creating activity, because we don't seem to value the entrepreneurial culture in the UK.
At the other end of the scale, people in their 50s are finding it difficult to continue working. IT workers, in particular, are finding
it difficult to obtain employment. That leaves us with a window of about 25 years' tax-paying employment to fund a huge non-productive sector and to take on debts to perhaps buy a house (and pay off student loans).
If we accept that the productive sector will be restricted to the 30 to 50-year-olds, we can see how small a minority the productive sector will end up being.
One day, we'll ask the question: where are the wealth creators? Where have they gone? The answer will be: they all left the country years ago, leaving us with an economy 100 per cent dependent upon the state. In other words, we'll have communism.

Yorkshire Post, Published Date: 22 November 2009 


Far too many people are now sheltered from the realities of wealth creation in the UK. Where is this going to lead us?


The population of the UK will rise from 61 million to 71.6 million by 2033 if present trends in growth continue, the Office for National Statistics (ONS) has said. This will involve a huge increase in the elderly population. Additionally, more than two-thirds of the increase is likely to be related directly or indirectly to migration to the UK. The proportion of people engaged in productive private sector employment is declining.

 

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