Although most nations boast of their valour, for sudden reckless courage you really need a Frenchman. This courage is not the everyday steadiness of the Briton – indeed, it may only occur erratically – but, when it appears out of the blue, it is spectacular: France is the nation of Roland, du Guesclin, Joan of Arc, Bayard, Cyrano de Bergerac, d’Artagnan, Murat, Danjou at Camaron, and a rugby team that stood up bravely to the All Blacks.

It is also the nation of Nicolas Sarkozy, who had his own moment of insane courage last week when he admitted that it was a mistake to let Greece join the euro in the first place.

Since this an obvious truth, an objective observer might ask why he deserves any credit for stating it. Yet the Western political Establishment is now being held together only by a complex network of fantasies. The markets are buying into these illusions – literally – because the alternative is collapse. For a President of France, a country whose economy has been based on illusion for decades, to question just one of these lies is to question the whole structure.

That the euro is, was always, and remains conceptually flawed is obvious, but that is just one of several basic truths our leaders are incapable of accepting, at least in public...

1   The latest “deal” on the euro is no deal at all: it depends on the Greek and, now, Italian voters and their representatives agreeing to serious reforms, which they currently have no incentive to accept.

2   In exactly the same way, the “deal” on the US government debt that was agreed earlier this year is unravelling, as this blog predicted, because referring the matter to a committee was only postponing the problem. 

3   Government debt, not growth or employment, remains the real problem in the West. The latest American GDP figures confirm another of this blog’s predictions, that, although growth will remain sluggish, a double-dip recession is avoidable. Yet politicians and central bankers have lost focus: in their obsession with “jobs”, they are pushing still more money into the economy – which is the problem, not the solution.

4    Inflation is now a serious danger, again as we predicted.

5   The solution to unemployment is not more injections of cheap money but improving business competitiveness. That, however, is a long, painful, unspectacular process that does not appeal to politicians.

6   The crisis of 2008 was due, first and foremost, to the bankers, but it ended very quickly and the markets recovered from it; the crisis that is now brewing is a new one and one entirely of the politicians’ making.

Not usually ones to blow our own trumpets, we nevertheless don’t plan to let the world forget we were well ahead of the game in predicting the current jobs crunch.

But, as we have also said before, it was blindingly obvious this was going to happen.

Yesterday*, Britain’s Prime Minister, David Cameron, said his government was doing everything possible to create jobs.

This is, of course, a lie.

(In the Prime Minister’s defence such mindless exaggeration has become a quasi figure of speech and few take it literally. Nevertheless, it behoves politicians to be accurate with their use of language.)

There are many things the British government could do, some of them cost free, to boost employment.

The two most obvious are the abolition of jobs taxes (Employers National Insurance) and the abolition of employee rights legislation.

The first of these raises a lot of cash for the Exchequer and its doing away with would be seen as dealing a very substantial blow to Britain’s already parlous financial circumstances.

However, there is a fiscally neutral way of getting rid of it: simply convert this from an employer to an employee contribution, while at the same time imposing a time period during which employers must increase employee gross salaries by the equivalent of the National Insurance payments they would otherwise have made.

This would protect employees from being out of pocket, but would also avail them of the knowledge of just how much their job actually costs and how little of their 'hard earned' they get to see at the end.

It would not save employers a penny from existing employees. However, it would pave the way to reducing substantially the costs of new jobs created. Those who are currently unemployed might well prefer a lower salary than no salary.

But, the really big fish to fry is the abolition of employee rights legislation. This wouldn’t cost the government anything but would make British companies far more competitive. They would grow, new ones would start, and employers would no longer be fearful of hiring.

It’s not that the government doesn’t know this. It will be blindingly obvious to them. But they find it just too politically unpalatable to take action.

The Conservative Party is still trying to detoxify its brand, and shake off the image of being the nasty party: hence seemingly obscure obsessions with promoting gay marriage and ring fencing the overseas aid budget (one of only two areas of spending so protected).

It is the same fear of being seen to be nasty that obstructs the political will to tackle the uncompetitive employment burdens Britain has shackled itself with for the last 15 years or more.

So, though received wisdom says “it’s the economy, stupid” really “it’s politics, stupid”.

But, in time, the economic argument and the political argument will converge. Democratic governments pursue paths of least resistance and there will come a day when there is more to be lost politically by keeping these employment burdens than by getting rid of them.

Employee rights and jobs taxes are not the only barriers to economic growth but they are huge ones and their removal would certainly be a big step forward.

Sadly, as the drastic austerity measures now being imposed in Greece suggest, things have to get very bad indeed – which means much more unnecessary suffering for us all – before politicians find the political courage to do what they knew, deep in their hearts, they would need to do all along.

* This blog post was first published on 13 October 2011

Today, in front a joint congressional session, Barack Obama will talk about America’s weak labour market.

Politicians talk a lot about “jobs”, especially at the moment, since their own might depend on generating more employment for voters. Yet most of them remain uninterested in business – except, perhaps, when they leave office and look for a way to exploit their contacts. The rest of the time they seem incapable of understanding the link between jobs and business.

It is in fact very easy to “create jobs”: simply pay people to do things. The problem is finding the money to do so. For a job to be viable, it must generate enough additional income, or save enough money elsewhere, to cover its total costs – not just the salary but payroll taxes, administrative costs, additional workspace, employer contributions to healthcare and pensions, etc, etc, etc...

Or, to put it in economist-speak, the marginal revenue of each new job must be greater than the marginal costs.

So there are two ways to increase the viability of jobs: increase the marginal revenue or decrease the marginal costs.

Politicians seem obsessed with the first option. They think in terms of “stimulus” to increase the amount of money in the economy in the hope that will increase revenues – but there is no guarantee the money will go in that direction: much of it is spent wastefully or saved or used to reduce past debts or spent on imports.

Decreasing the costs of employing people is a far more efficient option. However, politicians seem determined to increase those costs, through increased taxes, healthcare contributions, minimum wages, regulation, etc, etc...

The bottom line is that viable jobs can be generated only by viable businesses.

Attempts to find quick-fix alternatives are counter-productive. If money is borrowed, it must be paid back. If money is printed, it is the same as borrowing from the future. If money is taken from viable businesses by coercive taxation to subsidise the unviable, it is destroying viable jobs to buy a little more time for those that cannot survive – the strategy that devastated the British economy in the 1970s.

If the politicians are serious about wanting more jobs, they should listen to the people who actually provide them – business. If they set us free, they would be amazed by what we could do.

Faced with the disastrous consequences of years of compulsive borrowing, the British government has adopted the twin-track strategy of trying to cut the public sector and hoping the private sector will take up the slack.

Yet the British economy remains very sluggish. Many talk of the need for a “Plan B”. They might be more credible if some of them were not the very people who got us into this mess in the first place, and if their “Plan B” were not the same policies that caused the mess – excessive spending, borrowing, and printing of money.

So the government’s strategy remains the best option, perhaps the only option, on the table. Indeed, it would be nice if they actually implemented it. The economy is weak because they have not done what they say needs to be done. It is not enough simply to wish the private sector to grow. They need to help it, or at least stop hindering it.

Of course, tax cuts would be a good idea, but we need to accept fiscal and political realities. They would generate growth that would pay for them in the longer term, but in the short term the government must pay its bills. That said, a genuine and meaningful cut in the taxes that businesses face befoere they even make a profit - payroll taxes and business rates - is still probably essential. And, that cut needs to be substantial - halving the burden of each at the very least. Tinkering with a 1%  here and 1/2% will not make a difference.

On top of this, for a realistic hope, government needs to listen –actually listen, and then respond – to some of the things business has been saying for years. We may sound like a cracked record when we go on about Britain’s failed education system and excessive regulation, but the consequences are now too obvious to be ignored any longer.

The reform of education will take years – and we will believe it when we see it – but the effects of deregulation could be immediate, if only there was the political will to implement it seriously. The evidence is against there being such a will. The government pays lip service to the need for it, and has abolished a few obscure rules of which most of us have never heard, but whenever the government faces a real choice, it funks.

The current administration failed its first test when it implemented the previous government’s notorious Equality Act. Its most recent failure was its burying the obvious truth, known by the Prime Minister’s own adviser, that excessive maternity and paternity leave entitlement discourages business from generating new employment.

If government wants business to give it growth, put us to the test. Suspend demands for unnecessary paperwork for six months, and, during the same six months, allow business to employ new workers on contracts exempt from statutory impositions like maternity and paternity leave. Such signals of a serious commitment to change would be enough to re-establish Britain as a desirable business venue, and trigger a tsunami of new enterprise, new businesses, new growth, and new employment unparalleled in the West in recent times.

On the whole, British small businesses are unimpressed by the Confederation of British Industry (CBI), the organisation the media trots out when it wants someone to “represent business”. The CBI is actually the voice of big business, and it is dominated by people are too frightened of rocking the boat – lest it endanger their firms’ government contracts and their personal hopes for knighthoods or peerages – to speak out boldly.

So it is a pleasant surprise to read the outgoing President of the CBI, Sir Richard Lambert, telling the truth very bluntly indeed. It is perhaps significant that he is the outgoing president, that it was his last major speech in office, and that he is already a knight. Perhaps he felt he had nothing to lose. Clearly there will be no Lord Lambert.

Sir Richard, as he will remain, started by reaffirming that business supported the British government’s spending cuts. However, he went on to say it was “not enough just to slam on the spending brakes”.

If government wants the private sector to generate employment – not least to replace jobs lost in the public sector through cuts – then government should be “making it easier to employ people, not harder”.

The opposite is happening. Politically motivated initiatives are actually damaging the private sector, says Sir Richard. Although, typically, the government-owned and centre-left BBC report neglects to mention it, this is clearly a reference to the generally despised Equality Act, and to the proposal to extend paternity leave, among other things.

It seems that the current British government, like its predecessor, will pay lip service to the needs of private business, because it knows it needs it, but has no real sympathy for it. Given a choice between increasing the nation’s wealth and engaging in populist stunts, no matter how damaging, it chooses the latter every time.

Sir Richard sums up the problem by saying that the British government lacks a broader vision of what the economy should be.

This is a fair criticism – but it applies to more than just the current British government. The same can be said of its predecessor, and of the American government, and of most of Western governments of the last twenty years.

To find governments that really cared about productivity, we have to go back to the Cold War period. It cannot be denied that the socialist regimes of the East had a vision of their economic ideal, albeit a nightmare vision. What the West needs are governments that share the obsession of totalitarian states with increasing production figures, but which realise that liberal free-market policies are the best way to attain them.

Politicians of all parties profess to be concerned about unemployment – but they are absolutely clueless when it comes to implementing practical solutions. Or are they ignoring the facts deliberately?

They love to focus on big “job creation” projects – or, if in opposition, on big layoffs – by big business. British government spin doctors have been busy pushing the lasts ‘initiative’ this week.

Yet in most countries small businesses, having smaller reserves, are hardest hit by recession and are more likely to come under pressure to make people redundant – but also generate more new posts than big businesses.

In the UK, for example, there are over two million unemployed and almost five million small businesses. If half of those small businesses could take on just one new employee each, then there would be no more unemployment.

To this the objection might be made that over half of those five million small businesses consist of a single self-employed owner-operator with no other employees. However, this objection misses the point that these are the very people who would most like to take on some help – albeit on a casual basis, rather than full-time.

However, when they try to do so, they find that there are two enormous obstacles – one on each side of the deal that both parties want to make.

On the would-be employer’s side, there is a mountain of bureaucracy. Employing a single individual on a casual basis is a trip wire that triggers an avalanche of red tape that is, in some respects, just as complex and time-consuming as employing a dozen people full-time. Filling in tax forms for someone to whom you are paying a hundred pounds or dollars to do a little casual work is often more trouble than it is worth.

Meanwhile, on the would-be employee’s side, there is another, completely different pile of paperwork if the employee is, as usual, on some sort of benefits. Many benefits are withdrawn as soon as the unemployed person begins to earn – in effect 100% taxation of the very lowest earners!

So even where both parties are keen to do a deal, there are major disincentives on both sides.

Yet these disincentives are all artificial, the result of government regulation. If the government is serious about reducing unemployment, it is high time they did three things:

1.   Consult real small businesses – not various self-appointed trade bodies that cosy up to the government because they enjoy being part of the Establishment.

2.   Genuinely listen to and understand what they are being told – not just patronise us with the usual ‘lip service’.

3.   Find the political courage to act on the suggestions they are being given.

There are more employees than employers so in the short term there are more votes in robbing Peter (the employers) to pay Paul (the employees). But in the longer term we are left with a retarded economy and high unemployment. Short term political courage would lead to much long term economic gain.

America’s recovery is slow, but there are signs of improvement, at least in some states and some sectors, for those prepared to look for them.

The problem for US politicians is that most voters are not inclined to look. They judge economic progress by the crude measure of “jobs”, and economic growth does not necessarily mean an increase in employment. On the contrary, it might mean that companies are finding more efficient ways of operating.

Some say the policies of the Federal government actually discourage growing businesses from taking on new people.

Since this blog is strictly non-partisan, and since the government’s record on employment will probably be the decisive issue in November’s mid-term elections, it is not for us to take sides.

However, it would be interesting if we could construct an experiment which enabled us to compare different approaches to the economy. For that experiment to be fair, the different approaches would have to be applied to identical situations.

That is impossible in the real world, but it is possible to compare different approaches in places where there are several common factors.

California and Texas are both big states with ethnically diverse populations. Both border Mexico and rely on immigrant labour. Both have significant agricultural and technology sectors. Both have known the extremes of prosperity and poverty in the past. Both have Governors of the same political party.

Yet it is generally accepted that Texas is coming out of recession far more strongly than California.

Perhaps one should not read too much into this. After all, the economic strength of a state varies according to how one defines “wealth”, and most definitions produce patterns that defy neat explanation. For example, several states with “left wing” reputations have a higher percentage of millionaires than most.

So it is unwise to generalise – except to say that it is clear that local variations do matter, and that different policies do produce different results. If this is true within countries, it is true between countries. US politicians should not assume that a return to economic growth will mean a return to high employment. Job generation requires effort – or at least a friendlier attitude from government towards those who might be willing to make that effort.

Government bullies business and big business bullies small business. Such is the order of things.

However, although business can exist without government, and often has done, government cannot exist without business to finance it – and small business is in many ways more indispensible to the country than big business.

We have always stressed the importance of small business but the statistics that prove it still come as a bit of a shock.

According to figures from the British government – a source not exactly biased in favour of small business – there are 4,800,000 small businesses in the UK, as opposed to 7,000 big businesses.

Those small businesses contribute more than half of the nation’s turnover – and more than our fair share of the taxes that fund its public services: governments give tax breaks to individual citizens because they can vote, and to big businesses because they can always move offshore, but we are the easy targets.

At a time when politicians profess particular concern about jobs, you would think that they would love small business for employing 58% of the private sector workforce in the UK – and, of most immediate importance, providing the vast majority of new posts. Small business is the most efficient engine of recovery from a recession caused by the follies of governments and big businesses.

Small business is also the country’s best hope for the longer-term future – the provider of 69% of apprenticeships and the source of 64% of commercial innovations.

We should be valued for this. We should be loved. Politicians should be falling over each other to ask us how they can make our work easier, so that they can help us rebuild our country.

Yet we are ignored. The loudest voices when it comes to actual policy are those of the bureaucrats and the politicians themselves, then those of big business and other special interest groups. The polite complaints and requests of the small business lobby, such as it is, carry no weight.

The only protest we can make is with our feet: we retire or we emigrate. Even then, the politicians do not notice our passing. They only complain that the economy is not growing as fast as they want – but they profess to be mystified why this is the case. We could tell them – indeed, we have told them – but they do not want to listen.