Plan A+

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.

Modern Technology, Medieval Thinking

James V groat 1526 1704

In the middle ages, the legal system was a profitable source of income for the kings and barons who controlled it. Fines paid by the peasantry went straight into the purses of the very people who imposed them. Predictably, the number of pretexts for fining the peasants kept increasing.

It seems that Britain is now reverting to the feudal system, and a committee of MPs agrees. There has been a considerable growth in the number of pretexts for separating us poor serfs from the few groats left to us after the tax man has had his regular cut. The latest example is the aggressive levying of “late payment fees” for overdue paperwork. It might be argued that it is legitimate to discourage undue delay in submitting necessary returns, but the fact that it is being made harder than ever to do all the form-filling in the prescribed manner suggests that is not the real purpose.

Registering tax returns online ought to make the process easier – in theory – but HM Revenue and Customs have succeeded in making it as difficult as a medieval quest.

The first challenge is making sense of a poorly designed website. Then you must register – which inevitably took several attempts. Only when you have registered are you told that you have to wait seven days for an “activation code” – this while on a deadline of the Revenue’s making. Predictably it did not turn up. This initiated the next challenge, a spectacularly unhelpful “help desk”. This took the form of Ordeal By Call Centre – the usual ten minutes of multiple choice on a telephone keypad and queuing before being granted the right to speak to an ignorant apprentice on a temporary contract.

In accordance with the traditional format of quest literature, your knight errant had to go through the Ordeal three times before finding the truth – that the request made ten days before had never been processed.

When the code turned up only a week late, it seemed like a miracle – but several failed attempts to download the required software necessitated a return to the dreaded “help desk”. This time, however, a genuine human being had accidentally been employed. He gave some useful tips on their unusual downloading procedures and admitted cheerfully, “Everyone has to come here sooner or later – you could never work it out on your own.” True.

Finally filling in the long-winded electronic form took two hours – where ticking the boxes on the old paper forms would take only minutes, so long as you had the necessary figures ready.

Alternatively you can always buy commercial software – all for the privilege of helping the Revenue tax us.

3 Strategies for Growth Explained

20090110 money printing-01

The business community is generally behind efforts to reduce government deficits, especially in the US and UK. Yet at the same time, it is often said that deficit reduction alone is not enough. There has to be a strategy for positive business growth.

At first sight, there seems to be a paradox. Deficit reduction means cutting expenditure or raising taxes or both – any of which is bad for growth. However, in the longer term, deficit reduction is essential if growth is not to lead to inflation, which will in turn destroy growth.

In an effort to simplify the whole debate, here are the three main ways by which growth might, in theory, be encouraged – and the obstacles to their delivering that growth.   

1   Maintain high government spending. This can be done only by raising taxes or by continuing to run the current huge deficits. Higher taxes simply reduce growth – even Keynes, the economist usually (mis)quoted by those who favour big state spending, said as much. Running up deficits is itself the problem, not the solution. It cannot go on forever. Apart from anything else, it is inefficient because government spending rarely goes to those sectors with the greatest potential for viable growth. 

2   Cut taxes. This is the most effective way of stimulating growth, because the money released can be targeted at the most productive parts of the economy. In the longer term, intelligent tax cuts will produce growth that will increase government revenue, which will in turn reduce the deficit. The obvious problem with this is that it takes time: in the very short term, tax cuts will actually increase the deficit – unless accompanied by spending cuts which are politically and administratively difficult in a democracy.

3   Cut regulation. This could be done at the same time as either of the other two strategies, or on its own. It is the only strategy that does not increase the deficit in the short term. Indeed, it might reduce it immediately, since fewer rules out to mean fewer bureaucrats to enforce them. The downside is that for deregulation to make much of a difference to growth, it will have to be radical – and so far governments have been very reluctant to give up any of their power over business. We are not holding are breath.  

Enemies of Enterprise

The British Prime Minister, David Cameron, has promised to declare war on the “enemies of enterprise”.

Well, if he is indeed fighting a war – and there is little sign of it – the enemies of enterprise are winning and he is losing.

The bureaucratic burden on small business is increasing rather than decreasing. April 6th is one of two “red tape days” – the other being in October – when new regulations come into force. According to the respected Financial Times, no less than fifty additional obligations are being imposed on business.

If Mr Cameron is serious about fighting the enemies of enterprise, he should stop employing them. Those who make the lives of entrepreneurs unnecessarily difficult should be told, “You were employed to make the economy fairer and more efficient, but you have done the opposite. You have put a burden on your fellow citizens when you should be relieving them of it. Your services are no longer required. Since you are being dismissed for cause, you should not expect any public honours, or any lump sum or pension beyond the absolute legal minimum”.

These words could and should be applied to a very long list of bureaucrats.

Another Disappointment?

The British government has, apparently, told the Federation of Small Businesses that it will consider abolishing up to 22,000 business regulations.

The first response from any right minded person will be “What the ...? How on earth did we ever get in a position of having so many regulations in the first place?”

If the government will consider abolishing this number we ponder how many there are in total – 40,000, 50,000?

But, don’t get too excited. As ever, the devil is in the detail. First, the government has said it will abolish up to 22,000 regulations. It could only abolish one regulation and still, technically, comply with this undertaking.

Second, regulations will only be abolished if officials do not find good reason for them to stay. These are same officials who introduced the regulations in the first place. No doubt in the crazy, alternative reality in which they inhabit there were – and more importantly, remain – so called good reasons for all this nonsense.

As optimists we’d like to believe the government. As realists we know this is just another cynical exercise in vote grabbing that will have desperately little economic effect.

The government should realise at this stage of the electoral cycle – the next election is over 4 years away – populist measures are a waste of time, as they will be long forgotten come voting day. Instead, now is the time to do what it is essential, though possibly politically unpopular, to do.

Two years ago we predicted the recovery would be a jobless recovery. As with so many of our predictions, we have been proved right. Economic recovery, and job creation too, will not come about by silly, vote grabbing gestures.

Tomorrow sees the annual UK Budget, trailed as the most pro-growth budget in a generation. If we are to see genuine economic and job growth the government has got to take real action to decimate the swath of anti-business employee rights legislation, abolish jobs taxes and provide meaningful incentive to risk takers.

Alas, tomorrow looks like it’ll turn into just another disappointment.

A Disappointment Waiting to Happen

It is, of course, impossible to disagree with David Cameron, the UK’s Prime Minister, when he says that supporting Britain’s entrepreneurs is the only possible strategy for growth.

He has come out to declare war on the ‘enemies of enterprise’ ... but with a classic bit of blame shifting.

Entrepreneurs are currently even more important to their countries than usual. Governments like those of the UK and the USA are now being forced to cut state spending after years of extravagant expenditure and dangerous deficits. They have no choice but to rely on private sector growth to take up the slack, and small and medium-sized enterprises generate most private sector growth.

Britain’s previous government was also full of warm words about entrepreneurs, but it is difficult to recall a single occasion when, given a straight choice between enterprise and ideology, government backed enterprise. OK, they did reduce the rate of capital gains tax but the politics of envy won out and a ridiculous cap was placed on lifetime gains.

Cameron has yet to prove he is any different. Though what he says is obviously true – any economy is only as strong as its entrepreneurs – he has put all the blame on bureaucrats.

Though bureaucrats have been, and remain, the source of much needless grief and forfeit of economic opportunity, the more pressing problems are the regulations governments have given them to enforce and the burdens of tax all businesses face.

After the best part of a year in power, Cameron has done nothing substantial to reduce these problems.

On the contrary, the first time he was offered that choice between enterprise and ideology, he went the same route his immediate predecessors would have gone, when he decided to implement their notorious Equality Act despite vigorous protests of the whole business community.

It was the only real test to date of his seriousness about business – and he failed it.

We are not asking for government handouts or special treatment or gimmicky programmes. All we want is to be allowed to do what government is asking us to do.

Alas, though, the government has tied its own hands. It has made foolish policy announcements in support of tax rates that penalise success and ‘family friendly’ policies that translate into anti-business employee rights legislation. Added to that, it continues to support international treaties its predecessors signed that do little more than make our economy uncompetitive.

Mr Cameron’s words are still welcome, though he has a long way to go if he wants to prove that they are any more than just words. He has told us the forthcoming budget will be the “most pro-growth [Britian] has seen for a generation".

Somehow, we know we’re going to be disappointed.

Like A Lambert to Slaughter

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.

Not Dreaming Of A White Christmas

We blame the metric system...

Ever since British television unilaterally started measuring snowfall in centimetres rather than inches – “ten” instead of “four” – Britons have used the higher-sounding figure as an excuse to go hysterical over a little wintery weather.

The United Kingdom has been all but closed for business in the crucial last week before Christmas. There is no excuse – especially since this is the fourth time a relatively small amount of snow has caused major disruption in Britain in as many years.

Of course, there is little that can be done to help retail businesses suffering from the physical absence of customers, but there are practical steps other businesses can take to minimise all forms of disruption.

1.   Accept this is going to happen: a number of recent events have demonstrated how, as modern business life becomes more complex, it becomes more vulnerable to a range of potential disruptions.

2.   Draft a formal emergency plan, and brief employees and, if possible, suppliers and customers, so everyone knows what to expect – and what is expected of them.

3.   Train employees who live relatively near the place of business to act in key roles in case those who normally occupy those roles cannot get to work.

4.   Maximise the number of employees with access to work facilities.

5.   Keep contact details of employees, customers, and suppliers at home. This might violate data protection rules. We wouldn’t want to encourage anyone to break the law but in our experience businesses that take the practical and pragmatic approach tend to fare better than those who show blind adherence to rules that don’t serve them well.

6.   Use the internet – e-mail and websites – to keep everyone informed about what is happening.

Please, Do Not Help Us

Britain’s new economic strategy is sound: cut the wealth-consuming public sector and expand the wealth-producing private sector.

This is no more than simple common sense. Yet the UK’s public sector has been expanding for years while the private sector has not been growing as it ought. The laws of mathematics tell us that the inevitable consequence of increased expenditure and insufficient income is debt. It is a shame that it took a recession to force Britain to face that reality and try, at last, to reverse both trends.

The problem is that, in adopting this laudable strategic objective, Britain’s new Coalition government has no idea how to achieve it.

Here is how to do it. Do not try. Just let business get on with it. If the politicians and bureaucrats would leave us alone – and by that we mean take away all their meddling, interfering regulations, rules and compliance burdens – the private sector would not only achieve their objective of taking up the slack of the reduced public sector but would go on to expand far more than their narrow little minds could ever imagine. History proves this.

However, the politicians do not really have faith in this. Unless they are prepared to act on their words, business will not be able to take up the slack. The strategy will then be perceived to be failing, then blamed, then abandoned – without really having been tried.

If they rely on business, they must trust it. They must take us seriously when we say that legislative interference like the “Equality Act” in the UK, the maternity proposals of the EU, and the poorly drafted healthcare reforms in the USA, will prevent us from completing the tasks they have assigned us, to generate income and employment.

They must also understand that no government schemes or spending programmes designed to “help” business can make up for that interference. For President Obama to tout a “Small Business Bill” after approving the pork barrel of the stimulus package and federal healthcare is like shooting a man in the guts and then offering him a Band Aid.

Similarly, the language of the new British government is suspiciously reminiscent of its unlamented predecessor, which thought a few handouts to selected businesses – its friends – could compensate for increased tax and regulation that drove businesses and jobs abroad.

Message from Business to Government: Yes, we can take up your slack for you – but only so long as you do not try to “help” us – just get out of our way.

Whatever Happened to the Glass Ceiling?

What do Pepsi, Kraft, DuPont, Xerox, and Johnson & Johnson Pharmaceuticals have in common?

Two things: all would be on any list of archetypal American industrial conglomerates – the sort caricatured as being run by fat men with top hats and cigars – and all are, in fact, now being run by women Chairmen.

Note that they all use the title “Chairman”, not “Chair” or “Chairperson” or “Chairwoman”. That is in itself significant.  Public sector types get very worked up about women not being in positions of authority, and see “inclusive” nomenclature, tokenistic quotas, and legislative nonsense like Britain’s Equality Act (have we mentioned that we dislike it?) as the best way to promote women. 

The private sector adopts a different approach – it simply rewards success, irrespective of gender.

The irony is that the relaxed private sector actually has a better record of putting women at the very top of the pyramid than the obsessed public sector. You do not see many women Presidents, Prime Ministers, Governors, or Mayors of major cities, but you are seeing a lot of women CEOs and EVPs – future CEOs.

A system based solely on merit actually favours talented women more than public sector tokenism.

More than that, every woman who heads a company in the private sector – from a part-time small business to a major multinational – knows she is there because she deserves it. Unlike their public sector sisters, they did not need special treatment. Every one of them earned her place. The markets would not allow it any other way.

Note also that women are more likely to reach the very top in business in the meritocratic United States than in Europe, where there is more tokenistic legislation.

Some still complain that there are fewer women in higher management in private business than men. There probably always will be. Women are more likely to desire career breaks, for obvious reasons. That is their choice, and choices have consequences. That is the nature of choice.

What is now beyond dispute is that no position in private business in the West is inaccessible to a woman with the ability and the ambition to seek it.

In this, as in so much else, the public sector, instead of telling us what to do, should be trying to copy our example.   

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