NATIONAL > The great balancing act
Published: Thursday, 06 Jan, 2011
A very happy New Year to all of our readers. perhaps I should also wish you more than your fair share of luck, for it seems that, like Napoleonic Generals, lucky executives and firms will stand a better chance in 2011. The positive thing is that nobody is pretending this will be a good year: the worrying thing is that a clear dichotomy is becoming apparent in how people think we could best survive the current climate
A very happy New Year to all of our readers. perhaps I should also wish you more than your fair share of luck, for it seems that, like Napoleonic Generals, lucky executives and firms will stand a better chance in 2011. The positive thing is that nobody is pretending this will be a good year: the worrying thing is that a clear dichotomy is becoming apparent in how people think we could best survive the current climate, create the conditions for future success and profit from any such success. Even more worryingly, that dichotomy reflects clear demarcation in line with vested interests. Oh dear.
In the UK, it's all about the deficit; how it came about, how it should be reduced and over what timescale. But even the hardest line in this debate seems glibly to miss one point: the deficit is not the important thing; what matters is the total national debt and, at the time of writing (06 January 2011), that stood at more than GBP993 billion, according to the www.debtbombshell.com website. While that website's presentation may well be theatrical, the number accords with the ONS figure of GBP971.0 billion for the UK net debt (including financial interventions) at the end of November 2010. The deficit is simply the amount by which the country's expenditure exceeds its earnings. So, to reduce the deficit by any amount short of elimination is no more than to slow the rate at which the national debt grows. In fact, the UK's 2010 deficit at about GBP180 billion (13.3% of GDP) demonstrates the extent of the problem of a growing national debt - on which, incidentally, the cost of interest alone is likely to have exceeded GBP40 billion in 2010. In that context, the notion, in some quarters, that we can 'grow' our way out of recession while continuing to pour money into unaffordable public programmes is barmy.
Equally barmy, on the other side, is the idea that we should outsource all of our public services to the far East in order to cut the costs of running the country. While there may well be some administrative functions that could be moved from the public to the private sector, that can perfectly well be achieved within the UK and with the added benefit of greater security than, perhaps, some offshore locations might offer. Also, if the UK is to recover from the current crisis, it will need to cultivate not shed the skills to run a country, even if some of those skills would be better cultivated in the rich soil of private sector accountability rather than the over worked grounds of public sector subsidy. Hence the demarcation of views along the lines of vested interest: people are reverting to type and either trying to protect the positions that they accumulated during Gordon Brown's stewardship of the economy or trying to prise some of the action away from an increasingly disparaged state bureaucracy and into their own sphere of profitable activity.
Given unbridled access to the public purse during the last ten years, the public sector has too often exhibited the sort of self serving, empire building traits of which those on the political right often accuse it: similarly, given the kind of 'light touch' regulation that comes from being able to offer retired cabinet ministers and regulators a nice board appointment, banks and financial institutions have exhibited the kind of greed and stupidity with which those on the left often brand them. In the middle, the poor bloody wealth creators (manufacturers and non financial service providers) who have neither access to the public purse nor can threaten to bring down the whole house if they are left to suffer the consequences of their behaviour have been, for too long, neglected.
So what has any of this to do with inward investment? Real investors (and, here, I exclude the global asset strippers who buy a brand and then relocate the work to cheaper climes) look for a number of conditions including access to markets, access to supply chain, local capability (either expertise in the sector or demonstable capability to acquire expertise) and sound physical and service infrastructures. The other thing that will influence a decision on long term investment is that hackneyed and over used term, 'sustainability'. Economic sustainability can only exists where social and fiscal conditions are in balance and, therefore, likely to endure over the long term. The way in which the economy was run in the past ten years lacked that quality of balance and some of the more extreme solutions proposed for the future would similarly lack balance, albeit in the other direction. Also, the kind of industrial action being threatened in parts of ther public sector would not avoid the inevitable need for a balancing of the economy, they would simply make it more painful. If the UK is to be an attractive investment destination, then it must be able to show an economic environment in which each component of the economy, private or public, contributes usefully and with measurable value to a balanced and profitable whole.
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