Breadline Britain: Vince Cable, Economics and Rock’n’Roll

I had the good fortune to meet The Rt. Hon. Vince Cable, Secretary of State for Business, Innovation and Skills the other week, where we discussed economics (but no sex or Rock’n’Roll 🙂 )  The recent public sector strikes and the general mood of the nation reminded me of Jimmy Sommerville’s 1980’s classic “Breadline Britain”, hence the title of this blog:

During the meeting I discussed the thoughts of Evan Davis on the economy with Mr Cable.  I had met Evan a few weeks before, where he pointed out that the UK needs to create some new engines of growth in areas that other countries would (a) find hard to copy and (b) would give the UK export potential.  Vince broadly agreed with my suggestion that we don’t need a ‘nation of more tanning rooms and burger bars’, which largely consume wealth and have no export potential.  Of course, a shrinkage in the low value service sector and / or the public sector is deeply unpopular, but it does rather seem an inevitable consequence of some sound economic analysis.  We’ll see what happens now that we live in a rock’n’roll economy …

Cable but no Wireless - Vince Cable Rocks the Institute of Directors

We also discussed the slimming down of red tape in business.  I was delighted to present Vince with a copy of ‘Punk Rock People Management’, which I described as “perhaps the shortest white paper on simplifying business ever written”.  Being known for his unusually straightforward views, Vince was amused by the idea of being able to read a chapter in less time that it would take to pogo to a Sex Pistols song on Strictly Come Dancing.

So, it was a great meeting in the wonderful setting of Leeds Castle.  What an absolute coup for the Institute of Directors, who hosted the event.  All kudos to them for doing this.

What to finish this post with?  Well since a friend mixed Vince Cable up with Vince Clarke of Erasure, I guess we should go with one of their fine Essex based economical synth pop pieces – perhaps a call to some politicians who have lost Mr  Cable’s connection with ordinary people – “A Little Respect”:

To get your FREE copy of Punk Rock People Management or book a masterclass – either give Vince Cable a call or get in touch via the Punk Rock People Management webpage

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7 responses to “Breadline Britain: Vince Cable, Economics and Rock’n’Roll

  1. Interesting point about “exportability” Peter, it strikes me that the greatest export the UK has had for the last 60 years is music – what lessons might UK industry learn from international success of the Beatles, Stones, the Who, Zeppelin, Bowie, Queen et al whilst ensuring that the money isn’t tucked away in some tax haven and is instead injected back into the UK?

    If we’re using Erasure, I think we should note that most politicians are on a ship of fools, though we do love to hate them.

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  2. Now here’s the rub (or two)…

    Fully agree that we can’t continue as a nation of “service” industry but we have seriously degraded our export potential through the erosion of our manufacturing base in the last 30 odd years haven’t we?

    I’ve watched a couple of the “How to build” series on BBC2, high value sportscars, satellites, parts for jumbo jets etc. We do have some areas where the UK is truly a world leader, but look at those – niche products not the production line type. Isn’t the biggest UK owned car manufacturer now Aston Martin? We can produce Minis, Land Rovers etc. but the profit goes to Germany and India (well the loses in the second case currently). Largest UK producer of electric guitars? Gordon Smith – i.e. a 5 man outfit in a shed in Manchester – they are great guitars but hardly competing with Fender, Gibson or numerous far eastern brands.

    Can we turn though the high tech stuff I mention we are leading at into something big and mass production? Which does bring me to a UK success story… amplifiers. Marshall, synonymous in the world of rock. Now some are made in India etc. but still the majority are built in Milton Keynes and they compete very well in terms of facilities and price against the USA brands. Blackstar (formed by two ex-Marshall designers) have taken the world by storm in a small time, used by Ozzy, Journey etc. British design built off shore to good quality – Vintage/Fret King guitars have similar model. Maybe that is the model – design really good stuff, build the best of it here and off shore the rest but have a design/quality edge that prompts you to the top. To see people like Gordon Giltrap and Raymond Burley playing sub £1000 Chinese built instruments says a lot…

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    • Great points Graham and indeed, nobody said it would be easy. Once a flywheel is in motion, stopping it is very hard and the UK has certainly got its service economy flywheel in motion.

      You bring up Gordon Smith and … ‘next week’ the Chinese are doing it cheaper and so on. That makes it doubly difficult to find a way to stop the decline. And Marshall is still an interesting example – my bass player friend who plays with pro musos has a hand built Marshall worth £25K so I really do know what you are referring to here. Perhaps business models are less durable where competitive advantage may only reside in the speed at which you can learn and adapt?

      Thanks for your post Gordon – one day we’ll have that cup of tea in Kent.

      Peter

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  3. This from Linkedin:

    Jonathan Harris • Peter

    As you say, great venue Leeds Castle; for business conferences and seminars or private meetings.

    Is your treatise on business red tape available in Pdf format for downloading?

    Great to highlight the importance of “rock ‘n’ roll” in generating exports for the UK, the recent sale of EMI to the French rather sums up the dilemma for the UK.

    On the one hand, we have the world’s largest financial centre in the world, with the proven ability to innovate and create the most exotic forms of finance. Yet when real manufacturing and export businesses need finance; such as EMI, Cadbury and Pfizer for a local Kent example, not to mention many others, the financial community has been seen to be sadly lacking.

    Apart from a focus on generating UK exports through manufacturing and music, amongst others, we also need to re-orientate the UK finance industry away from ever more sophisticated financial engineering towards funding real companies, active in generating real value added within the UK.

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  4. More from Linkedin:

    Bruce Tuxford MBA • http://www.bbc.co.uk/news/uk-politics-16012293. Supporting evidence!

    Terilla Bernard • Is it me or are these exalted Think Tanks telling us what we already know, albeit I am not an economist.

    Can I also suggest that even though the great and the good have not officially told us but as an arm chair economist me thinks we are already in a depression (double dip), but should I wait for another Think Tank to come clean.

    Peter Cook • Thanks for this link Bruce – very interesting reading.

    Terilla – I was not at a think tank but an open discussion – telling us what we already know – you are right …. but doing something about it … now that is much harder …. is the economy too important to be left to economists? …. we’ll find out in time 🙂

    Malcolm Rutherford • The economy isn’t left to economists though, it’s left to politicians and it’s certainly too important to leave to them since they appear woefully unable to comprehend how it works. What would I do? Cut things: red tape and petty regulation that stifles enterprise, Government spending, tax so more of the money you make remains yours. A pretty standard free market approach.

    Terilla Bernard • Ok so can anyone tell me who/what is the market.

    Also my understanding is that politicians use experts i.e. economists so in effect they do have an impact/input even though it’s at an arm’s length.

    Malcolm Rutherford • Well Keynes said that most men of affairs were in thrall to some long dead economist, probably not considering that for many of them the economist in question would be him.

    The market is a what, as the name suggests it is a place where goods can be bought and sold. Free market suggests that the market works better when there is less distortion, caused by things such as regulation (not always but most often bad) that gets in the way of the counterparties reaching a mutually acceptable decision/conclusion based upon their own personal interest.

    Peter Cook • Vince introduced the red tape purge and the one in one out policy, whereby if a new policy came in, one must go out. There appears to be little evidence (yet) that it is reducing red tape. After all, many people’s jobs are intimately entwined with preserving it :-() Thanks for your helpful posts Malcolm.

    Malcolm Rutherford • Peter, That hit the nail on the head, while so many people only have “jobs” by ensuring red tape is adhered to there will be entrenched resistance to cutting it. Just imagine the howls if much health and safety legislation or the working time directive were abolished (if only).

    Peter Cook • I think there is a genuine drive to cut it in Gov, but one only has to watch an episode of ‘Yes Minister’ to understand the problem 🙂

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  5. This lot from Linkedin – a fiery debate indeed!

    Bruce Tuxford MBA • http://www.bbc.co.uk/search/news/robert_peston

    For those who have not had the chance to see it these programs they are well worth a watch. I liked the link to Philosophy but thats probably because thats what I studied after my MBA!

    Don’t forget that 2012 is the year that a lot of debts which were taken out prior to the crash become due. Wonder who will be buying them up?

    Mark Reeves • In haste:

    As far as the article goes, he spends some time stating the obvious – and very little time on his proposed solution, which actually misses the main point.

    The birth of the Euro sparked a great deal of lending from Northern Europe to the south, because the banks erroneously thought that the Euro meant lending to Southern Europe was safe. This lending wasn’t spent on what it should have been spent on (internal investment) it was spent on a property-lead consumer credit boom. Then property prices collapsed and we all know the rest.

    Because Southern Europe didn’t invest, it became ever less competitive than countries like Germany, leading to a giant balance of trade boom for Germany and deficits for everyone else. Traditionally the cure for this was devaluation – but thanks to the Euro, that was no longer an option.

    One great myth that needs demolishing is that not all the countries in crisis now were fiscally irresponsible. Spain and Ireland actually had fiscal surplices as the crisis hit – but that hasn’t helped them – Ireland’s unemployment rate is currently 14.5% even when you take into account rapidly rising emigration.

    If you are crushing your own economy (as common perceived wisdom currently suggests that we do) where will growth come from? Exports, is the traditional answer, and this is the route that Merkel is proposing for southern Europe. “Do it like we did ten years ago” seems to be her mantra. However this misses the rather obvious point that simple arithmetic teaches us that not everybody can have a balance of trade surplus.

    So the one thing that could save some of the besieged economies in expansion in the wealthier nations. We need to expand these economies to get inflation in Germany up to around 3%, then countries like Spain, and Italy (contrary to what the article says Italy’s debts are not beyond repair) could get out of trouble.

    However Ireland, Portugal and Greece are doomed, nothing can save those guys.

    (Spare a thought for a moment for the poor bloody Greeks. The second hardest working nation in the World according to the OECD, (harder working even than the Japanese and the Americans) whose corporations had the second highest levels of profits in the world (as a % of GDP) their reward for all their hard work? Another ten to fifteen years of abject misery.)

    So there you have it, the one thing that could just save the Euro (growth) is exactly the opposite of what Merkel and Sarkozy are proposing (fiscal tightening). But as the old saying goes, – “against perceived wisdom the God’s themselves contend in vain.”

    [Peter, I haven’t forgotten I owe you a post on why Britain’s current economic policies are completely 180 degrees wrong, but I have a 15:00 deadline today and I’m running behind.]

    Peter Calver • Is the Euro worth saving? Clearly with the benefit of hindsight (or foresight in my case) it would never have been created, certainly not in its present form.

    Mark Reeves • No it should not have been created, Europe was nowhere near ready. Yes it has to be saved now, we have no choice.

    Bruce Tuxford MBA • All.

    No one person can have an answer; all this forum can do is improve our understanding!

    Unless; Cameron are you using a pseudonym name?

    Mark Reeves • Probably not, no.

    Malcolm Rutherford • Mark,

    As ever I enjoyed reading you post, although I have a slightly different take on a couple of the things you mentioned.

    If I may start with the idea about lending to southern Europe not being on infrastructure:

    Not entirely, I lived in Greece for six years until the end of 2001 and when I went back in 2007 I was amazed at the differences. There was a brand new multi-lane highway between Athens and Corinthos with multiple tunnels blasted through the hills, all at great expense no doubt and never likely to earn any decent return. Spain is another country where infrastructure projects were undertaken, but it was the wrong infrastructure, or in the wrong place. For it to be a true investment there has to be a return on the money spent. Far too many projects would be like the high speed link to Brum promises to be, money down the drain.

    The consumer boom was, to an extent, driven by this as suddenly areas were awash with funds and there was a mad scramble to pay stupid wages to build things that circulated back as the newly enriched workers decided property was a one way bet.
    Southern Europe became less competitive because the price differential for their labour was gone. They were not as productive as the Germans and never had been, but now they were being paid as much as the Germans (or nearly) and this was a huge drag on their competitiveness. Yes much of the investment that took place was arguably of the wrong sort but it wasn’t a lack of modernisation that is dooming them as much as it is that they are too expensive now.

    I think Italy needs inflation to be a little bit higher than 3% to inflate its debts away. Even in the UK we seem to be aiming at +5% inflation as a wheeze to get the Government out of the debt trap. That this will penalise savers appears to be, if not forgotten, then certainly met with general political indifference.

    You have mentioned the OCED considering the Greeks to be hard working before. All I can say is that this was not my experience; perhaps they only mean the private sector because the public sector was/is hopeless. I don’t know a single Greek who thinks any different. You were lucky if you could get them to do anything for you and even then it was wait hours for someone to produce the correct rubber stamp and then buy a bunch of official stamps (to pay for the transaction) from the little street kiosks.
    That said I don’t envy them, I still have friends living there and they are all battening down the hatches for the long haul and have already taken pay cuts.

    Merkel and Sarkozy appear to be advocating fiscal tightening in an attempt to squeeze as much money out of the beleaguered countries as possible so that French and German banks (many of whom are dangerously exposed to Southern European debt) manage to recoup as much of their loans as possible before the bubble bursts. They are not advocating inflationary measures although in all the cases mentioned it is unlikely meaningful reflation could even be begun, they do not have the tax base for it and the tap of credit has dried up. There has to be a period of painful readjustment, the strategies outlined so far aren’t responsible for this, fiscal profligacy was, but are unlikely to help.

    Inde Sagoo • Many aspects to this one, but my starting point is with a long term view on investment in our next generation, bring work into the classroom, invest in infrastructure that benefits the UK not just individuals, and provide a benefit to those who fund that investment.

    Being competetive is about providing value, being self sustained as a country may be impossible but it will help in terms of remaining competetive in economies of energy and grain!

    Mark Reeves • Malcolm, thank you for your response.

    1. I didn’t say there was no investment in Southern Europe, I said there was not enough. The loans were used to fuel a consumer boom, as evidenced nicely by this graph of the GIPS countries current account balance, which went down the tubes after introduction of the Euro in 1999.

    http://tinyurl.com/bmoqboz

    2. Here is a Forbes article that provides a link to the OECD study about hard work. The Greeks work an average of 2052 hours per year, second only to the South Koreans.

    http://tinyurl.com/3vre3a

    3. Yes savers need to be penalized, the last thing we need right now is for consumers to start saving their money.

    4. Outside of Greece there is no evidence anywhere that fiscal profligacy was the cause of Europe’s problems. As I pointed out earlier Spain and Ireland had fiscal surplices up till the great crash, and Italy’s debt issues are surprisingly small considering they insisted on electing a complete basket-case to run their country year in, year out.

    5. If growth is not coming from the private sector, and you insist on cutting back the public sector where do you expect future growth to come from?

    Don’t tell me the magic confidence fairy, because I won’t believe a word of it.

    [Yes I know I still owe a post on Osbourne’s incompetence. It’ll be with you tomorrow.]

    Malcolm Rutherford • What do you consider an investment that favours the UK not just individuals. Certainly there is a serious need for energy generating capacity whether that is gas fired relying on shale gas or nuclear. that should be invested in ASAP since in the case of the latter build times are relatively long.
    I seriously doubt there is sufficient arable land in the UK to enable us to be anywhere near self sufficient in grain though.

    Malcolm Rutherford • Mark. Growth never comes from the public sector because the public sector has no money other than what it takes from the private sector. To believe otherwise is believing in a fairy of some sort or other.

    As for the Greeks, don’t confused hours worked with working hard. Many of them doubtless do work hard, the people running their own businesses work very hard indeed or at least very long hours. But productive? They are not. For example large numbers of teachers moonlight as private tutors to teach the kids in the afternoon and evening what they should have been teaching them in the morning. This is, no doubt a great boost to their hours worked, but not to their productivity of actually getting anything done.

    The UK isn’t so different on the productivity front. We decry the French for working 35 hour weeks (although many really work longer) yet they manage to be, irritatingly, generally more productive than we are.

    Peter Calver • “the last thing we need right now is for consumers to start saving their money”

    Mark, consumers are saving already – according to the Economist (26/11/11) the savings ratio has gone up to 7.2%, which is the highest level since the start of the millennium.

    That’s why (in the post you described as “total nonsense from start to finish”) I suggested that we need consumers to spend more.

    No wonder it’s taking you so long to draft your response….

    Mark Reeves • The reason that my responses take so long is that I think for myself.

    I don’t simply parrot the perceived wisdom from Daily Mail leader columns like some people I could mention.

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