Britain needs a national will to reform

How much of the bailout money is actually supporting companies that provide jobs? I had a chilling conversation with a senior banker last week. He stated that almost three-quarters of the taxpayer lifeline provided to rescue British banks has gone to property lending. This means our system has not changed. We should be funding working capital in operating businesses, not helping landlords. A distorting addiction to real estate is part of why it all went wrong in the first place.

This recession is different from others of the past half-century. Unemployment is rising at an unprecedented pace – and the jobs may never come back. Just as with war, I wonder if we will cope with the casualties. How will whole swaths of our nation deal with the prospect of gradual destitution stretching out for years to come?

Over the past 30 years, the west has hollowed out much of its productive capacity and shipped it to Asia. There, workers are grafting away for a fraction of what we expect to be paid. Meanwhile, we have borrowed and consumed, and are ill-prepared for the future. Our demographics are against us; our infrastructure is frayed; state spending is too high; and tax receipts are falling dramatically. Currently, the world gives our currency and government bonds the benefit of the doubt; as the IMF states, this suspension of disbelief will not hold for ever.

There are several ingredients to a revival. To start, we require the national will to reform. A powerful desire radically to improve our lot, and actually take the necessary actions, is a vital precursor. It involves abandoning the ingrained sense of entitlement and dependence prevalent in many of our communities. We cannot afford to subsidise so many able-bodied citizens to remain idle. A way should be found for them to contribute. We must embrace a work ethic that involves scrapping restrictions and regulations that render our companies unable to compete. In a diverse society, we need a common sense of purpose and a realisation that our system is unravelling.

Perhaps the single most important task is to boost technical education massively. We ought to equip our workforce with the skills to perform in the modern world. Our output must possess sufficient added value that it cannot be easily substituted by low-cost producers. Whole cities and regions desperately need to undergo industrial reinvention themselves, just as countries such as South Korea and Taiwan have during the past 40 years. Innovation, diligence and discipline are vital.

Banks and financial institutions must transform their priorities – especially those using state cash. They should direct capital towards primary ends – money to buy plant and equipment and organic expansion – rather than the secondary purpose of trading assets. I much prefer backing development projects rather than buy-outs – the former increases capital stock, the latter simply substitutes it.

There should be genuine acceptance that support for entrepreneurs is the best way ahead. Only then can we create the jobs that have been lost, and invent and commercialise the products and services that will enable us to pay our way in the world. Government funding of “soft jobs” is a dead end. It will not correct our balance of trade; it risks crowding out the private sector and distorting the proper functioning of the marketplace. Moreover, where is the tax revenue to pay for all this massive intervention? Instead, we must make it cheaper for the private sector to hire.

I write because too many of those who comment and advise are theoreticians and academics. I actually work every day with owners and managers who are in a life-and-death struggle to keep their companies going. The grand announcements of economists and politicians appear to bear little resemblance to the brutal realities of business conditions at the moment. By nature most are slaves to the state – what can they know of capitalism? We face stagnant markets for an extended period, and must rebalance our industries – and our principles – if we are to be properly equipped to meet the challenges ahead.

by Luke Johnson

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