As the US Presidential debates get under way the ideas of big government vs. small government are being aired just as they are in the UK and indeed Europe – all be it in more oblique terms on this side of the Atlantic. France for example is suffering from the reaction to the reality of Hollande’s intervention against the wealthy – the debate is hotting up. Meanwhile the likes of Martin Wolf of the FT are questioning if meaningful Economic growth can ever return to the mature economies. There is much confusion and excessive political loading of this topic and yet it is so vital that it demands a dispassionate pragmatic approach.
My own view is simple – governments must be the facilitator and enabler of a healthy economy and society. That does not mean that the state should itself invest in growth. States do not have the means and in most cases the skills to do so. Compare the two Koreas!
The US state share of GDP is likely to fall; it is also shrinking under Cameron and will likely shrink across Europe since state contributions of over 40% of GDP are unsustainable models for growth and fiscal balance.
So what can the governments do to stimulate growth? Quantitive Easing (printing money through the back door) has prevented further economic decay but not stimulated growth – mainly because the money has gone to Government bonds or the financial markets where balance sheets needed bolstering. So QE has provided security not stimulus.
The UK has over the past few years tinkered with a number of ideas to help growth but it has lacked commitment and even conviction in so doing. It has certainly lacked imagination. Some ideas are good but most are half hearted. Since 2008 the banks have been a lot less able and willing to help businesses. Vince Cable’s £1billion Business Bank (the latest idea) is a great but it’s taken too long to arrive and it will take some time for the details to be made clear too.
There is the European Investment Bank fund available through UK banks for business start ups. Its size is not clear nor its real reach and accessibility. Few are aware of it even!
The ‘Start up Loans Company’ was set up in May 2012 with £10m (yes, only £10m) for young entrepreneurs but the good news is that at the time of writing there have been 2000 loan applications.
If only 1000 start ups emerge from this it will create maybe around 3000 jobs in the short term – this is real acorn territory and great news. Then there is the ‘Funding for Lending’ scheme announced in September 2012 where the Bank of England is making available circa £60Billion for the banks and building societies to be able to support the economy: this however is primarily aimed at mortgage funding – business and consumer. This is more direct QE and as such is a very good thing.
Last month it was announced that there will be an ‘Office for Growth’. A committee backed by civil servants (hopefully not drawn from the Department of Transport!) will run this if it gets off the ground. This is a nice sounding idea but it smacks of a government department with the kind of inertia that will never help business.
Identifying the growth enablers could be done in two days with the right minds around a table. From this can be designed a blueprint for 1 – 2 – 5 and 10 year growth. That could be done in two weeks. Then these elements of growth should be baked into the psyche of ALL government departments as well as financial institutions. This will not be just about infrastructure projects and loan schemes. It will be about the tools and enablers to create an enterprise culture and a country that is highly attractive to inward investors.
What this article shows is the confusion and array of sticking plasters being applied – we need a joined up and coherent set of measures and dare I say policy? Come on Dave & George – what’s more important this year?