Where’s the beef?

Stylistically, David Cameron is at his best when making speeches like the one he made today to the CBI . He plays the eager enthusiast for modernity rather well. When it is combined with praisng businesses and criticising bureaucracy, it’s pretty much a home fixture for him.

In substance, there is nothing in the Industrial policy proposals he put forward that I would argue is foolish, unnecessary or destructive. 

That might sound like damning with faint praise, but that’s a pretty good standard to reach in any industrial policy speech, since it’s so easy to jump off into mercantilism, corporatism, beggar my neighbouring and sundry other sins.

So it’s actually quite a compliement, though sadly one that doesn’t apply when it comes to the government’s overall economic policy.

So let me be supportive for a bit.

Technology Innovation Centres are a good idea, and worth backing. I’m glad that we’re not slashing infrastructure spending.

A review into innovation is good too, though Labour’s Innovation Nation White paper was pretty good, and the Dyson review by the Tories, while decent, said little particularly new.  

Disclosure – I’m a fan of encouraging innovative research in small businesses via a lottery for research vouchers, cutting out the bueracracy of deciding who gets what, which discourage Small Business.

I’ve also been convinced by ideas like expanding the Student Loans system to include vocational, part-time and day release education, to improve our skills and innovation base and build HE-Business links. I’m pretty convinced the government would like these things too. So I wonder how much more we need to review it again.

So, there’s a fair bit of decent stuff here*. Stripped of the unavoidable rhetoric that pretends it’s a huge break from the past,  Cameron’s speech has the makings of a sensible continuation and refinement of the previous government’s Infrastucture, science and innovation policies.

Here’s the big but.

David Cameron began his speech with two big questions – “Where is the growth going to come from – where are the jobs going to come from?”

His speech was a decent answer to a totally different question.

The proposals Cameron discussed are nowhere near enough to deal with the scale of our needs. At a Conservative estimate, we’ll need to create some two million jobs over the next few years.

It is just not a big enough deal. The measures announced today, and the ideas put on the table for the future are decent, but they’re small.

This speech sets out some useful micro-interventions, but it is nothing compared to the big problem of the overall economic approach. 

The big problem we have is high unemployment and low investment. (It’s worth reading Duncan Weldon’s post on this problem in the US, as it applies to Britain too)  The government has decided we should complement that with lower public sector investment too.

We need to create around two million private sector jobs in the next five years.  How?

Chris Dillow nicely sets out why it might be difficult, given the government’s plans.

 Jobs and Growth are the two key issues the government faces.

So David Cameron asked the right questions today.

Unfortunately, The Prime Minister then spent the rest of the speech carefully not answering them.

That’s the problem.

*Though I find it odd that we have this argument about the need for a broadbased economy, when the business models that always get namechecked in these speeches are Skype, Facebook, Twitter, Google and Cisco. These are service industries, and mostly ones that survived  a huge boom and bust cycle, when a huge number of firms got flooded with cash, and not all survived.  I suppose you can point to Cisco’s router business, but that’s like pointing to the California Pickaxe and Panning Company as a model for post Gold rush businesses.

18 Responses to “Where’s the beef?”

  1. Richard Nabavi

    “We need to create around two million private sector jobs in the next five years. How?”

    Hopi, the answer is very simple.

    The same way as before: by getting the state out of the way, avoiding falling into the trap of assuming government knows best, keeping taxes on innovation and business as low as possible given the state of the public finances, resisting as far as possible damaging directives from the EU (though admittedly that has been made unnecessarily difficult by the previous government), reducing red tape, confronting vested interests and monopolies – and letting the private sector get on with it.

    It’s not hard, is it? We and other countries have been through all this before. The way to growth is well known.

    Reply
    • bert

      Richard, you speak a lot of sense here.

      The trouble is, Labour have no instinct for private enterprise – indeed, I would suggest they hold it in open contempt. Maybe if they stopped using private employment as a vehicle for social engineering, they might be taken seriously by serious business.

      One day, the words “wealth creation” will be embraced by the Collective – but I wouldn’t hold your breath.

      Reply
    • hopisen

      Oh for goodness sake, Richard, you’re smarter than that glib nonsense.

      I doubt you even mean it. After all, If you really want “to get the state out of the way”, you won’t be supporting Cameron’s infrastructure, science or research policy at all – at the very least you’d be mostly complaining about plans to remove capital allowances.

      In any case, where’s the evidence that high employment is best achieved though that process?

      To say – “getting State of way=jobs” is to ignore pretty much all of post war economic history. That doesn’t mean that we should go back to post war full employment generating policies, but it certainly doesn’t mean you get to ignore 40 years of jobs and growth in Western Europe and the US.

      Basically the argument that backs up your case relies purely on post recession job growth in the eighties and nineties.

      But even that doesn’t give you the answer we need. As Adam Lent says:

      “After the recession of 1980/81, 2 million jobs were created in the economy over a period of seven years off the back of average annual GDP growth of 3.6%. 2.5 million jobs were created over eight years with GDP growth of 3.5%.

      “After the recession of 1991/92, 2 million jobs were created over a period of nine and a half years with average annual GDP growth at 3.2%. Creation of 2.5 million jobs took eleven years with growth of 3.1%.

      “Against this experience, the OBR forecasts do look optimistic: it is predicting that post-recession employment will rise significantly faster than in the 1980s or 1990s on a slower growth rate”

      (This doesn’t even begin to touch the fact that since then we’ve got open EU borders, so Economy job growth feels very different to UK resident than it twenty or thrity years ago.)

      So, even is we more than match the Lawson boom, we’re in trouble.

      Heck, we only have to look at the US, which is more deregulated, lower taxed, and doesn’t even have to worry about “EU directives” to see that this job creation malarkey is proving a bit tougher that usual.

      Do I have the answers? Not at all.

      I suspect there’s room for lower business taxes, higher infrastructure spend, increased Educiation and skills spend, major research investment, intensive intervention in low employment areas and increased incentives for FDI, all of which, you note, reduce tax incomes or increase costs. but I don’t pretend that this is an easy agenda.

      What I do know is that a bit of “laissez faire” handwaving won’t do the trick.

      http://www.touchstoneblog.org.uk/2010/07/office-for-budget-responsiblity-are-the-jobs-forecasts-credible/

      Reply
      • Richard Nabavi

        Hopi

        I don’t know how smart I am, but I’m smart enough to know that I don’t know – and no-one else knows – exactly where the growth will come from.

        Economic history since WWII is littered with examples of governments wasting vast amounts of money on trying to second-guess technological and business trends. From Harold Wilson’s ‘picking winners’ and ‘white heat of technology’ to Japan’s 1990’s ‘Fifth generation’, they have almost invariably been miserable failures, and often did more harm than good.

        How could it be otherwise? By definition, business innovation is unpredictable. Pfizer thought they were investing in a drug to treat hypertension and angina pectoris . They ended up with a product very successful in treating (ahem) a different indication. Google, Amazon, ARM, DirectLine all became major businesses out of nowhere.

        A government which really wants to help small businesses become big should do things which make it easier to take risks and to keep going when times are temporarily hard – reduce business rates, outlaw upwards-only rent reviews, make it easier to hire staff without getting committed to unsustainable long-term costs, reduce legal costs by reforming the courts, reduce compliance costs and red tape. That sort of bread-and-butter reform is where government can really help.

        The temptation is always to try to interfere in the product development. A mistake; the only thing worse than a government which doesn’t understand how business works is a government which wrongly thinks it does.

        Note, though, that I didn’t advocate ‘laissez-faire’. To the contrary, governments need to bear down on vested interests and monopolies – the two big enemies of innovation and progress. They can take many forms: entrenched unions, vested interests in the establishment or within government itself, or companies with monopoly market power. These all need to be dealt with, and it’s not easy.

        The key point is to remove obstacles to new thinking and new ways of doing things, be it in education, in new medical procedures, in new industrial processes, or whatever.

        As for capital allowances, government grants, R & D tax credits, and all that stuff – frankly, I would say forget it. I’ve got long experience of all that stuff, and in my experience it is a waste of time, effort and money. For example, why should so-called R & D (the definition of which is highly dubious) be favoured in the corporation tax system compared with less glamorous incremental product development, or with costs associated with actually selling any new products into export markets? It makes no sense whatsoever. All three involve risk; all three might potentially bring a reward. Just lower the tax rate, and let the business decide on the priorities.

        As regards the current government’s policies, I think they have got the big picture right, but I’d like to see them going further along the lines I’ve indicated.

        We’ll see the growth. But I haven’t a clue where – and nor has anyone else.

        Reply
      • Hopi Sen

        I note you ignore the point about post war macro econ in favour of an discussion of 1950s & 1960s industrial policy. I’m not quite sure why, as no-one is advocating that.

        When you get onto what government can do, you have a gap- you list various online businesses as coming from no-where. Really? Did arpanet not have some government involvement? Or look at the history of cisco, and the way it’s founders basically free-rode on the back of Stanford for early router development. What about the way the founder of Netscape says mosaic wouldn’t have existed without al Gore’s 1991 act. In both those cases investment in research ended up being a subsidy to later billionaires. I’m using these examples because I suspect you work in that general area…

        So to claim that all that needs to happen is to keep taxes low and attack “vested interests” is to miss two huge parts of the story- first the macro framework you operate in, and second the way that certain state investments can and do encourage growth as they create public goods- (just like roads, schools do.)
        On your tax point, I can certainly accept that tax credits lead to some Market distortions. You can get overly complex abd you have a good point- note that i advocated general lower business taxes. But people seem to be worried about some deficit or other and it’s only fair to point out that cutting business tax is a lot cheaper when you target it. So for a defecit hawk such as yourself, it is a helpful tool, though a specialised one unsuitable for all conditions. A putter not a three iron, you might say.

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      • Hopi Sen

        Oh, and anyone quoting the pharmaceutical industry as an example of non-state supported success Needs to look a bit more carefully at the relationships between big pharmacy companies and governments.

        There’s a reason Billy Tauzin got two million dollars a year to head phrma and it’s not simply to protect intellectual property ( though it is a fair not of that too!)

        Reply
  2. ad

    The TUC’s job is to agitate for more money to be spent on the members of public sector unions.

    Why should I trust it more than the OBR?

    Reply
  3. Stuart

    I like the idea of extending the student loan system for the people you list. I’m reading Fault Lines at the moment and while the author’s views and mine are rather different I like his idea that government could “contemplate offering tax credits for workers who have worked for a number of years and decide to take a break to study or retool”.

    In a different area, I don’t know if you’ve seen this FT thingy about the pros and cons and ins and outs of government-owned infrastructure banks but it’s interesting reading – http://ftalphaville.ft.com/blog/2010/10/18/373051/magnus-vs-donovan-the-emails/

    Reply
    • Hopi Sen

      I can’t claim it as my idea- I nicked it off an IEA pamphlet that I was pointed to by a Tory…

      Reply
  4. Newmania

    I can`t see that high employment is the only consideration. We need efficiency , competitiveness and a vibrant Economy to create wealth and imposing a distortions that increase costs can only create fake jobs , the sort New Labour have fed their chums for years. The white heat of technology has been going to ride in and save us since Wilson and Benn .
    Laissez Faire we aint getting , we will remain a highly taxed country , probably more so than ever , but that Hopi is so convinced business men and consumers cannot entrusted with a little more of their own money strikes me as “bold”.
    I would say we have not had enough unemployment which is damaging if it is long term but a common experience for the private sector, god knows I have suffered it . Do we borrow more money for New Labour to concoct some regional and or industrial policy or not ?

    Hopi doesn’t “Not “ sound awfully tempting ?

    Reply
    • Edward Carlsson Browne

      Define ‘fake jobs’. If they pay a wage you can live on, pay tax and national insurance on and not claim benefits from, it’s a decent job.

      And pretty much any job is better than paying them JSA – both for them and for the government.

      Long-lasting and widely spread economic growth needs low unemployment, so that government isn’t having to pay to support the unemployed and so that consumption continues to increase.

      A bit of unemployment is fine if it’s mostly down to churn in the job market. When there aren’t enough jobs, it’s just driving people out of the job market, which makes no sense that I can see.

      Reply
      • Newmania

        Define ‘fake jobs’. If they pay a wage you can live on, pay tax and national insurance on and not claim benefits from, it’s a decent job.

        Then why not a have an “Elastic band power” energy policy and employ the whole country twisting it up ? The argument for the high employment caused by Wind Power is not much less loon than that.
        Hopi seems to err on the side of full employment althought even a fairly extreme lefty like him accepts that policies that have full employment as the only goal are dangerous and short term at best. He clearly accepts then that there is a point where employment for its own sake is too damaging

        If the state keeps jobs merely by borrowing more and printing money then , when the day or reckoning comes unemployment will have to be even worse . If it keeps jobs by refusing to reform the Public Sector or its Union base it only slows the competitiveness of the Economy.

        Think of it like a Company. If we aquire new clients and need asisstance then we have created a job. If we borrow a lot and let everyone work less eficiently so as to do the same job with more people, we have created a fake job
        That is the sort of job Hopi wants to make disguising what he is up to by recourse to guff about R and D and regional initiative .

        Reply
      • Edward Carlsson Browne

        Then why not a have an “Elastic band power” energy policy and employ the whole country twisting it up ? The argument for the high employment caused by Wind Power is not much less loon than that.

        Newmania, I think you may have discovered Keynesianism!

        More seriously, I’d agree with you on wind power, although perhaps for different reasons – I just don’t see green tech creating that many jobs, as all the potential industries are highly mechanised.

        Regardless, whilst seeking full employment may create more problems than it solves, you still haven’t addressed my question.

        Why is a job that pays well enough for somebody to contribute to the exchequer as much as they receive in benefits not a real job? Why is it better to get nothing back to the exchequer by letting somebody stay unemployed than it is to get them employed, even if at a very low rate, so that they repay at least some of the money the state is spending on them?

        You’re not going to tell me that you believe only jobs that produce real tangible goods are real jobs, are you? Because by that criteria there have been fake jobs in Britain for at least two and a half millenia.

        Reply
  5. Newmania

    it certainly doesn’t mean you get to ignore 40 years of jobs and growth in Western Europe and the US.

    Are you suggesting that this was caused by the administrations of say James Callaghan , Harold Wilson and so on? Or that socialism was responsible for the prosperity of the US ? Excuse me for chortling
    Your Bennite update on a five year tractor production programme will not make much odds one way or another. What you really want to do is either borrow a load of money or tax it and throw more demand at the Economy. Top Economists ho ho agree or not , who cares … It is only the utter implausibility of saying so that stops you short with a ” I don`t know ” synthesis. Thats right you don`t
    More borrowing will keep employment high but increase the risk of a loss of confidence in the country ( quite rightly ).
    Personally I think you are right to deride growth estimates Alistair Darling was relying on and times are going to get tougher before they get better .
    Unemployment is restructuring and that is what we have to do. I would suggest that State assists with re-location and training rather than pretend it can do business which it can`t and worse still get in the way

    Reply
  6. bert

    “….but it certainly doesn’t mean you get to ignore 40 years of jobs and growth in Western Europe and the US.”

    This is very true Hopi – but thank God it has nothing to do with your core belief, socialism.

    Reply
  7. Jason Crabtree

    Re- growth and jobs, we’re not in the 1980s and we’re not in the 1990s. We’re not large-scale manufacturers anymore: that role’s been taken on by China, the Far East and Eastern Europe. The service sector is the main employer, and the situation’s unlikely to revert. If there’s a general consensus, it’s that growth and new jobs are more likely to come from the small or medium-sized business. But when Cameron’s proposals are stripped of their rhetorical packaging, I think he has big business and the banks in his sights. Reducing corporation tax isn’t going to help the small business; reducing bank charges would. And business rates are more likely to increase than decrease, given the shortfall in local council funding. Meanwhile, commuters outside of the big cities are going to pay far more for rail fares (how does that meet the demand for a more mobile workforce?!), making it more difficult to recruit… (One could go on, ad nauseam.) In short, the Tory vision is skewed, and I don’t think they have any understanding of worlds outside of their own.

    Reply

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