Martyn in Europe

The article, written by Jonathan Todd, and published on Saturday 12 June 2010, was titled "No need to choose between finance and manufacturing" with the argument "Broad-brush commitments to rebalance our economy are an incomplete response to our economic growth challenge". The following text was essentially my response.

Let’s be clear about this, the suggestion that a sector of a business should contribute a larger percent to the overall business does not, in any capitalist sense, mean necessarily that you will deliberately diminish the net contribution of other sectors, and even large corporations are fully aware of the inherent dangers of allowing the balance between lines-of-business to get out of control. On the other hand, from an Inland Revenue perspective, reducing profit in certain sectors by increasing taxation on those activities, does make a lot of sense, even if this type of policy will bring howls of anguish from certain sectors of published rather than public opinion.

Now, as far as I can see, the UK has organised itself into a corner as far as systemic economic risk is concerned. This hasn’t been caused by one party or by one sector, but part of the blame can be reasonably laid at the doors of blind-faith in neo-liberal economics. Putting aside the sound-bites of Cameron, Cable and Mandelson for one moment, they still have respectable views on what I would term the poverty of business diversity in the UK. Moreover, I think to state that a rebalancing necessarily means a diminishing of the actual contribution of the financial sector is rather a problematic argument in itself.

This is not a choice between one thing or another, but of increasing overall contribution of strategic businesses, and to control things like systemic risk and the positive implications that has on government cash flows.

Now, the problem with classifying business activities can be problematic, especially when new professions come into being, but this is not the case with any of the traditional activities, whether that is in the financial sector, manufacturing, R&D or the liberal professions, and to be quite frank, in that respect, I don’t know what the fuss is about. Some financial services organisations are purely service organisations, staffed with  managers and administrators, but with not one investment adviser, banker or trader in sight, keeping, as they do, their business confined to activities such as processing subscriptions, checking paper-work, processing corporate actions, paying dividends, custody and bookkeeping.  

So, all in all the argument that we have concerns and proposals based on an either/or scenarios is moot. This is just not the case, reducing the overall percentage contribution of the financial sector by boosting other sectors, i.e. manufacturing, does not diminish net contribution, per se. An asset management organisation would be incredibly foolish to create such systemic risk, so to does any government that allows the economy to be too dependent on a given sector.

As for the claim that British manufacturing isn’t declining, well, it might not be at the moment, but for those who were born in the years BT (before Thatcher) we know full well that at one time manufacturing contributed more than 40% to Britain’s wealth, and now it stands at half of that. I don’t know what they teach at schools these days, but a 50% drop does seem a tad like a decline, even given the prevailing FX advantages now available.

So, should Cameron, Cable and even Mandelson be concerned about the under investment in British manufacturing? Absolutely! Not only that, they should actually do something about it. One of the first steps I would take would be to take the nationalised banking assets and turn them into full-blown Industrial Investment Banks, the second thing I would do is to create additional tax advantages and protection mechanisms for nascent manufacturing initiatives, and thirdly, invest more in developing skills needed for innovation in manufacturing, i.e. in education. 

Now, coming on to the notion that you cannot have a successful climate policy without heavy involvement of traditional institutions, focusing perhaps on CO2 trading and Alternative Energy The assertions here fly in the face of facts in the ground, and without going into lengthy detail, it is best to illustrate it with a couple of questions: E.ON, RWE and Iberdrola owe what to “heavy involvement of financial institutions”?  and, what do EEX and Nordpool, for example, owe to the “heavy involvement of financial institutions”?

So yes, Cameron, Cable, Mandelson and others are essentially on sound ground when they hint that to up the overall contribution of sectors other than the financial sector is the right thing to do. It’s not a complex proposition; the secret is in the ratios, contribution and systemic risk. Britain will not force-march its way out of the financial crisis – and it is most definitely a financial crisis – by expanding the ability to open doors for each other, to the detriment of everything else. An educated and willing workforce cannot be wasted on activities that can be eventually taken off-shore; it’s just not the way to go.

The link to the article on CiF: http://www.guardian.co.uk/commentisfree/2010/jun/12/finance-manufacturing-rebalance-economy