Current economic trends - call for evidence

[Huguenot]

There is a peculiar element to this debate that assumes that the UK can act in isolation, that there is a national solution.

It's a competitive world out there chaps, and brutally the UK isn't competing very well in any area except finance.

Broadly it's because the UK salaries are too high, productivity is too low, and we ate our national resources between 1850 and 1980. The penalty of the industrial revolution eh?

Everyone wants a piece of the financial muscle that the UK tends, and if johnny foreginer can legislate globally to make the UK unattractive they will. Not out of spite, but because for them there's only upside.

I wouldn't worry too much about India, China or Singapore, I can assure you that they'll have their work cut out looking after regional economic growth.

However, if Finance goes because you're all busy obsessing about middle-class angst, then the UK has nothing left but pomposity and delusions of grandeur. Don't bite the hand that feeds you etc.

Alphacali etc., I do wish that a chap of your clearly talented insight would turn his mighty intellect to finding solutions rather than pointing out obstacles. It is most particularly chaps like you who need to get on board and apply themselves. ;-)

[mockney piers]

Brilliant. So ?2 billion out of education for starters is middle class angst?

You've already said finance is all we have to offer, I'm not denyin it but that's not a situation we has to accept.

As I've said before we have many challenges ahead and the key to meeting those is education. And now that's being scuppered thanks to the banks. Biting the hand that feeds us? Don't make me laugh!!

As for Alpha's tremendous insight, none of it comes within an inh of the debt burdened. Just because a bubble makes money and contributes to the coffers doesn't make it a good idea, if it quacks like a duck....

[Jeremy]

HAL9000 Wrote:

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> We now know that most of the frenzied trading over

> the last few years was neither productive nor

> socially beneficial: it destroyed wealth and

> bankrupted the western banking system.

Inaccurate generalisation, Hal.

> The only way trading can come ?roaring back? to

> the City is if no one has learnt anything from the

> Great Financial Crisis. Are we that dumb?

A lot of the acitivity in the city is/was sound. For instance, there's no reason for the derivatives/structured businesses not to come back stronger than ever. What we will see is a reduction in risk (and less instruments with 'abstract' risk characteristics), and banks holding more capital.

[????]

We have nothing to offer...not quite true.

We have immense creative capital that punches above our weight in several areas - entertainment, Geeky games (I think that Is that right mockney?) TV/Film production..all growth areas with premium

We have pioneering development in areas like genetics where we are among world leaders

We have world leading companies in Pharmaceuticals and Drinks

Something in our educational structures and history (NOT OUR GENES) has given us great inventive entreprenuership too and our track record is among the best.. if not the best. We also have some leading globall recognised seats of academia.

Financial services will become more competitive but will always be there and we are still massive.

We still have a significant prescence in high value complex hight tech manufacturing.

No moral judgement offered but we also are amoing global leaders in the arms industry and aerospace.

Hate to get too thatcherite but whats so great about being good at bending metal and fixing it to wheels - to take one obvious example - in a world with oversupply and 3/4 billion chines workers ready to do it for ?50 a week?

See also coal - let Indonesia pull it simply and cheaply out of their open cast supplies than us dig it expensively and dangerously 3 miles underground 5 miles out to Sea.

Cheer up...we're not quite solely a chintzy Quuens , Kings and Castles tourist attraction just yet

[mockney piers]

'A lot of the acitivity in the city is/was sound.'

totally agree jeremy. Banking, whether retail or investment, serves a very real and useful purpose I'd love to see it go back to the models of sound investment and common sense.

This will preclude any 'roaring' however and certainly won't be a driver for growth and recovery. It will make sense in the long term though.

[Huguenot]

A bit mean to level the 2bn 'out of education' on the city Piersy, they also generate the taxable income that funds a significant part of the rest of the 74bn annual education expenditure.

Besides which education wouldn't have got the cash anyway, if it hadn't been spent on shoring up our national industries in the face of cyclical global recession, it would have been spent on cynical tax cuts before a general election ;-)

Anyway, I'm only being argumentative, I fully agree with almost everything you say, you eco-commie suit-basher you.

[alphacalifragelistic]

@ Huguenot

"I do wish that a chap of your clearly talented insight would turn his mighty intellect to finding solutions rather than pointing out obstacles. It is most particularly chaps like you who need to get on board and apply themselves."

Yeah, but no, but yeah.

I think we do need to start with a realist view of the mess we are in, in order to know how to get out of it. For example, sadly, the current political debate does not favour honesty and robust debate about the current state of our country's finances. Clegg has just been mauled in the press for pointing out the imminent reductions in public expenditure that are coming, whichever party ends up in power. Anyone who has read the output of the IFS over the past two years would have been able to work that out for themselves. That old line that the electorate can only bear so much truth appears to have been validated.

Secondly, part of the problem in reacting to the crunch is that interpreting it has been like a bizarre sort of magic intellectual lucky dip. Everyone gets a prize vindicating their earlier belief systems. So working out how to respond and what policies to adopt as a result is tricky. Note the lack of uniformity in our collective postings above.

Just to tease that 'lucky dip' point out a little more (madam)...

I know 'Socialist Alternative' (as opposed to the SWP, splitters!) politicos who read this all as a portent of the inevitable collapse of late stage capitalism and a vindication of classic Marx.

I know market fundamentalists, who blame it on earlier state (or quasi-state) mediated rescues of the likes of LTCM, thereby creating moral hazard risk resulting in over leveraging and under-pricing of risks.

I know Austrian School economists who point the blame at lax monetary policy.

I know fiscal (small 'c') conservatives who point the blame at a Keynesian / Hicksian style debt fuelled expansion of the public sector.

I know Keynesian economists who say that the problem is the lack of government intervention and management of the economy.

I know people who blame the British crunch on the creation of tripartite regulation in 1997.

I know people who blame this on the US 1999 de facto repeal of Glass-Steagall.

I know people who blame the Clinton administration's efforts to encourage wider home ownership in the States.

I know people who blame it all on the collapse of Lehman Brothers, resulting in a surge of systemic risk.

I know other people who blame it all on the following bail outs of other financial institutions, in order to quell that systemic risk.

The causes and details of the 1929 Wall St crash and subsequent Great Recession of the 1930's are still being argued about in the academic literature.

So, aside from knowing a lot of people, can I start with a nudge from Plato to say that at least I know that I don't know much for certain.

OK, on a more positive note can I make the following suggestions:

1.Engagement in public policy formulation can actually be surprisingly easy. If there is something you have a particular interest in or concern about, sign up for the email circulars and go along to the public lectures and events at the likes of the RSA, RAE, Royal Society, the think tanks, Westminster Hall debates, etc. Access to the politicians, journos, academics and think tank staffers working in a specific field is possible and can even be trivially simple to do.

2.Increased capital adequacy, a more sceptical approach to aspects of financial innovation and the imposition of what I would call 'financial fire breaks' in the banking system, isolating utility banking from areas prone to systemic risk, all seem to be things that we can agree are a GOOD THING, even if the devil is in the detail.

3.The stats in my earlier posting do indicate that financial services are a golden goose that we should hesitate before grinding into nuggets out of righteous indignation. Firstly, is that sector crowding out other industries? If not, then there is no either / or, zero sum choice we need to make. Secondly, can we fix it so it doesn't do wider macro-economic damage during the downturns in its cycles? Thirdly, given that the City is a centre for global finance (such as 70% of global bond trading), even if the net social utility for its customers is zero, London and Britain could still be a beneficiary of that trading activity. In other words, there is a lot to play for, if we can get this right.

4.There are potential solutions to some of the major problems we are facing, such as moving towards a more balanced energy mix, with an emphasis on renewables and better transport technology. Fortunately, that nasty market thingy is providing capital allocation via VC funding to this sector, to the likes of Tesla Motors, Better Place, etc. At the risk of echoing James Murdoch, for renewable technology to succeed it needs to be profitable. I actually trust VC's more than Whitehall bureaucrats in finding and funding winners in that field.

5.As bad and imperfect as democratic market capitalist societies can be (cf. California's current problems), they are still a hell of a lot better than the alternatives on offer. The environmental degradation found in East Germany after the fall of the wall and current abject poverty of North Korea act as empirical testament to that. We are at least in the 'least worst' class. I know Cuba looks nice in the brochures, but it's not. Really.

6.One of the key arguments that any actions taken by Britain or indeed Europe to counter climate change are pointless, since China is not on board, now looks bogus given the recent commitments made by Hu Jintao. To answer the cynics out there who would query whether this has the backing of self interest, can I point out that the smog in Beijing, the cost of imported petro-chemicals and the market opportunities that Chinese PV and wind turbine manufacturers have in their sights, should help their Damascene conversion along.

7.I take ????'s point that we still have strengths in life sciences (pharma and genetics) and engineering (high tech manufacture, aerospace, er, arms), but add the caveat that a key input factor for those industries (to sound particularly bloodless) is skilled employees. Tertiary educational excellence (in parts) is not enough and there are profound problems with aspects of our primary and secondary systems. The alternative is to import talent. Although Silicon Valley is staffed with the products of India's IIT's, is that sustainable? As for cultural industries like TV, well, format sales like 'Millionaire' are doing OK, but the sector is actually pretty miserable right now, thanks to migration to the web of customers and advertising, along with channel proliferation slicing the cake into ever smaller portions.

[mockney piers]

Alpha, while you make for interesting reading and clearly know what you are talking about, I do slightly feel that huguenot's point still stands.

That entire post boiled down to your first point 'yeah but no but' ;)

[mockney piers]

Ps even though I'm an Eco commie suit bashet, good to see Huguenot back.

Apologies chair, just needed saying.