baldysblog.co.uk

With Barclays and HSB publishing their half year profits neither of which took Government money to re-capitalize themselves but never the less have benefited from the effects of “Quantitative Easing”, there is a predictable outcry in the Media which to say the least, seems to me rather misplaced.

Regardless of the rights and wrongs, it is obvious that Banks need to rebuild their balance sheets it is also obvious from the results of Barclays and HSB that their retail banking is still in trouble which would be predictable and it is only their funny money dealers who are making profits.

Shallow Reporting

The average article is of the “Do Something” variety and as such, a bit headless chicken so let’s look at the reality:

The Government bailed out the banking sector because it had no choice. On top of this, over an 8 year period both a large number of consumers and the Government they elected, ploughed themselves headlong into vast debts on the back of cheap money. We can guess that it may take 20 years to undo the damage to the Public Finances, how long for the average consumer ?

For the consumer, they won’t even try to work it off if the debt is huge, bankruptcy is an obvious quick fix the impact of which will be felt in the balance sheets of Banks and Credit Card Companies, not a virtuous loop is it ?

A New Business Model

Perhaps the main point I want to make is that what we are looking at is an “old business model” and there is no way that is going to turn around overnight, also just how likely is the assumption that the global consumer economy that existed before the crash is going to come back ?

Just as generals start out fighting a new war as if it were the last one, so too the assumption is that this is the usual swings and roundabouts of boom and bust but I don’t think it is and do not believe that it will just bounce back again. In a sense my feeling and yes I might well be wrong, is that this collapse in World Trade was a “Crossing of the Rubicon” and things have changed and in many ways the “future economy” will be different in ways that are hard to predict right now and will evolve over a decade or so.

The British Economy

Rather than trying to “punish the Banks”, we should let them get on with it and let them do what they do but, we do need to reduce the influence of the City in terms of the UK economy which has become far too remote from real product and service innovation. We need to build a counter weight to the City in both financial and business terms in order to rebalance the UK Economy for the future.

Oddly in the UK, we are almost perfectly poised to have a revival of high quality manufacturing and the Government could help shape that because it needs to go hand in hand with a revival of private capital directly invested in wealth creation.

The Government could encourage private investors via substantial tax breaks whilst at the same time banning corporations and institutions from investing in the same market. Probably there will need to be a 10 year lock in before investors shares could be sold on the open market. There would need to be some clever drafting of the legislation here, if I remember rightly, a similar idea under Maggie to encourage direct investment in small businesses got subverted by the wide boys into buying into property for rent.

How To Start

The first stop for any manufacturing is “import substitution” because of a known volume/demand and an obvious starting point would be in defence procurement where there are already known budget allocations.

Because of the physical limitations imposed by the human body, we can no longer afford to develop fast fighter jets alone but, we could easily build Predator type drones and with 7,000 miles of coastline, we could use them for surveillance, search and rescue as well as missile delivery platforms flown from our shores.

Develop small carriers that can operate both them and helicopters and you can cancel the two white elephant aircraft carriers and more importantly, the planes to go on them which will give an immediate budget of probably £10 billion. With the through deck cruiser design of HMS Illustrious and her two sister ships we have a proven model to work from albeit with modifications and refits for the existing ships.

We can have more carriers at a far lower price, much smaller crews and deep water capable. In the process we will create design and manufacturing jobs in airframes, engines, optics, electronics, ship building and so on. All this needs to be done with new companies, private capital and the Government ensuring that the “not invented here brigade” get a good kicking as and when required plus some competition will shake up the likes of BAE.

Other Areas

It is not just in defence that opportunities could be found, tidal power generation, fibre optic cable laying and connections, all could be approached on the basis of the companies building the resource and retaining revenue from it thereafter and into the future. It implies risk but profit and risk go in a direct ratio but that is what wealth creation is about.

The Banks are what they are and the only way that it could have been different would have been if they had collapsed but they didn’t so tinkering with them is hardly a solution, building a parallel financial structure (market) that provides funds for mainly manufacturing, will put back real wealth creation back into the UK economy, develop jobs the essential skills and opportunities for ordinary people.