A thought-provoking
article on the BBC’s website today explaining the roots of the current economic
crisis – and a series of possible cures – for dummies like me who do not have a
clue how money works.
Lots of options are considered. The Bank of England could
write the Treasury a cheque for £100bn, say, money which would then be spent
building new railways and power stations and other good things. This money may
have come from nowhere but it would stimulate growth, create jobs, repair our
shoddy infrastructure and (by generating inflation) erode the National Debt.
Or we could simply hand every adult citizen £10,000 and tell
him or her to use the money to pay off their debts (and not, say, spend it on hookers
and booze). We could actively stoke inflation by these and other means to
debase the currency, stimulate exports and get rid of the debt. Sorted.
Except no one has managed to explain to ninnies like me how
this will actually work. Either money represents something concrete, ‘crystallised
labour’ if you like, or, if you must, gold (which is actually almost worthless
in absolute terms). Or it does not.
If, as I have argued, governments can simply write
themselves cheques for arbitrary sums in lieu of tax receipts, then money has
no real meaning. We may as well, as ran the plotline in one of Douglas Adams’s
wonderful books, simply declare the leaf to be the new unit of currency, wait
until autumn and all declare ourselves billionaires.
No one is talking about the two root causes of Britain’s
malaise. One is our productivity, or lack of it. We are simply not very good at
making stuff that we and everyone else wants to buy, quickly, cheaply and of
high quality. Making Things that People Want to Buy seems to be the root cause
of prosperity everywhere you look.
Of course you can be lucky and simply Have Things That
People Want To Buy (like oil) but this is rare and usually goes horribly wrong
(Equatorial Guinea) rather than right (Norway). Rich countries usually get rich
by making nice watches and furniture, Volkswagens and Toyotas, aeroplanes and
knives, machine tools and jet engines, locomotives and microscopes.
Yes, you can base your economy on less tangible things like
banking and tourism, but as the Icelanders found to their cost getting rich
simply by shuffling other people’s money around is a perilous business. And the
Greeks have discovered that their stunning archipelago has not been enough to
save them.
Switzerland’s wealth derives a lot from its banking/finance/insurance
sector (and tourism too) but Switzerland is also an industrial powerhouse at
the high end of the scale (precision instruments, specialist vehicles and, yes,
watches) rather than the lower-profit pig-iron sector.
Something we ALWAYS forget: our successful competitors STILL
MAKE LOTS OF STUFF. Yes I know British manufacturing is still a major deal, but
the problem is we simply do not export enough and our workers are not
productive enough – and the profits from too many British factories flow abroad
(and how ‘British’ is a Bentley that is made by a German firm in Dresden?
Ownership matters).
The second problem, which is more intractable, is the absurd
house price inflation of the last two decades which has saddled millions of families
with unsustainable levels of debt, put a block on the free movement of labour
and which has frozen up huge amounts of capital that could be more profitably
used elsewhere. People sit there in the
warm contented glow of knowing that their London fleapit is now worth three
million pounds when they bought it for 47p in 1980, forgetting that everywhere else
has gone up by the same amount and so they are as stuck as they were back then.
It was worse in America, of course, where tens of millions of unskilled people
in marginal employment with absolutely no income security were given mortgages,
fuelling an even more absurd (in percentage terms) housing boom that has now of
course crashed to Earth.
So easy-peasy to diagnose. What do be done?
If our problem is productivity, then this needs to be
addressed. Rather than printing money, we need to skill-up. I cannot think of anything
more worth investing in than education. We need a new emphasis on technical and
scientific skills. We need positive inducements to study maths, biology,
engineering and new, subsidised, practical courses for mechanics and ultra-skilled
technicians. For heaven’s sake, the West Germans did this in the 1950s and they
built the second biggest economy on the planet from the smoking ruins of WW2. They
made enough money in fact to buy East Germany like a property on the Monopoly
Board, the only example in modern history surely of one country simply
purchasing another.
Germans are no cleverer than us, no better at making cars or
jet engines or microscopes so why can’t we do the same thing? It is all very
well saying ‘everything is made in China’ but that isn’t quite true. Plenty is
still made elsewhere. Do you know anyone who drives a Chinese car?
We need to do something about the housing problem. Taxing
land and wealth, rather than enterprise, labour and effort, has merits. You can’t
hide a mansion in Monte Carlo or pretend that it lives in Zurich. By taxing land-value inflation you are, in
most cases, taxing the unearned benefits of state-funded development. Yes there
would be some losers (the little old lady with no income living in a draughty
house that happens to be worth millions yet which her husband bought in 1955
for £3000) but far more winners.
We need to have a rethink on immigration and visa rules. It
is mad that wealthy Chinese tourists have to jump through expensive hoops to
come and spend their new money here. The officials at the Home Office
responsible for this disgraceful state of affairs should be sacked. It is
madder still that highly skilled doctors and scientists from outside the EU
find it hard to gain access to the UK.
A system more like that used in Australia or Canada –
actively seeking productive immigrants, with strict criteria and caps on
non-contributory benefits - would be widely perceived as fair and just. Of
course our EU membership would complicate matters, but there are always ways
round the problem.
Few migrants want to come to Britain to ‘scrounge on
benefits’ in any case (why would they? This is a terrible place in which to be
poor as everything is so damned expensive). As Britain continues its slide into
economic irrelevance we will soon find that no one will want to come here
anyway. Mass immigration is something that tends to be experienced only by rich
countries.
In summary: we probably could inflate our way out of
trouble, but only in the short term and we risk turning the UK into Zimbabwe by
doing so. We have a huge trade deficit so everything we import would soon
become ruinously expensive. Protect the value of the pound. We need to invest in
skills and training, massively and fast. Do something to end the la-la land
that is the South East’s housing bubble and make it easier for the brightest
and best from abroad to come here. Stop selling our most productive assets and
chunks of infrastructure abroad. And stop being frightened of China. They’ll
probably take over in the end but the advent of the United States didn’t do
anything to stop the Swiss being wealthy. The wealth of nations is not a
zero-sum game.