UK’s twin track economy…

There’s an excellent series of articles in the FT this week under the heading of New Britain. Yesterday’s piece focused on the Tees Valley of the North East, and the Thames Valley in the south. Middlesbrough and Slough in fact. The stats they have compiled show two quite separate economic realities: one flexible and outward looking, the other inward looking and experiencing negative growth. Perhaps more worryingly (see graph), the wealth creation capacity of the poorest in society has dropped slowly but steadily since Labour took over in 1997.

Statistics compiled by the FT reveal a dramatic divergence in fortunes between regions. In 2003, the last year for which detailed figures are available, gross value added per head – the best measure of economic performance – was £11,100 ($20,840, €16,440) in south Teesside. In Berkshire, the county that includes the borough of Windsor and Maidenhead, it was £26,500.

In the past nine years, Berkshire has soared ahead, growing by 35 per cent in real terms. In south Teesside, growth has gone into reverse, falling 0.5 per cent.

The example cannot be dismissed as extreme: regional disparities have grown in all parts of the UK since 1997. The Financial Times has calculated that the poorest 20 per cent of Britain, measured by a region’s average value added per head, was responsible for 14 per cent of national economic output in 1997. By 2003, the equivalent areas contributed only 13.3 per cent. Meanwhile rich areas became significantly richer: the 20 per cent of Britons living in the most prosperous areas contributed 30.2 per cent of the economy in 1997 and 31.9 per cent in 2003.

However, these trends predate by some the ascent of Labour into office:

Where globalisation has ripped the old heart out of the Tees Valley economy, it has powered a 15-year boom for the Thames Valley. Windsor and Maidenhead’s location – close to Heathrow, an hour’s drive from central London – have proved a powerful lure for international companies. In the past 15 years, CA (formerly known as Computer Associates), Nortel, Hitachi and Hutchison 3G have located their European headquarters in the borough.

The neighbouring town of Slough boasts more European headquarters than Scotland, Wales and Northern Ireland together [my italics]. The wider Thames Valley region is home to a host of companies including Vodafone, Oracle, Microsoft, Cisco, Dell and Siemens. Even though many of these global companies have faced hard times in recent years, those who lost their jobs have seldom found themselves out of work for long, their skills in ready demand at other companies in the region.

The key is not simply in attracting large scale investment. Giles argues that there is a passivity in Teeside, that has its routes in the idea that large industrial concerns should supply large numbers of well paid jobs to the local population.

Part of the reason seems to lie in a less tangible difference in regional psyches that predisposes one valley to success and the other to failure. Talk to anyone involved in running, supporting or researching companies in the Tees Valley and you sense what Ray Hudson, a professor at Durham University who has studied the area for 30 years, calls a “pervasive way of thought” that only large companies offer security.

Last year the number of VAT-registered companies per 10,000 population – considered the best gauge of entrepreneurialism – stood at 166 in Middlesbrough compared with 641 in Windsor and Maidenhead. Moreover, the handful of start-up companies that exist in the Tees Valley tend to be in low-value added sectors, predominantly car repair operations and beauty salons, which will never expand to serve a regional – let alone national – market, according to David Storey, a Warwick University professor.

In the offices of Bob Little & Co, a rare Tees Valley success story, Kath Taylor complains: “Success here isn’t measured by you as an individual but by your position in a large company.” She is seeking central government funds to promote enterprise in schools, aware that the absence of a risk culture is holding the Tees Valley back.

I’ve requested that VAT Registered figure for Northern Ireland from Invest Northern Ireland to see where we sit on the scale.

,

  • IJP

    Hmmm… whatever the response from Invest NI, it’ll make depressing reading for NI plc I’d say, despite the prosperous facade.

    Our enterprise agencies are all criteria, no experience, I fear.

    For example, I know someone based recently relocated to Belfast from England for family reasons who sells education packs to schools, a few points:
    1. He can’t sell in NI (99% goes to England) – the public sector has it all sewn up and new guys are just trouble;
    2. He can’t get assistance to subsidise trips to convention fayres or such like, but he can get some “expert” on hundreds of pounds a day who’ll come out and tell him why he should be exporting (he already knows and he already is, he just wants the odd flight subsidy, that’s all!)
    3. He doesn’t qualify for other assistance because he doesn’t employ anyone – he uses suppliers, whom he keeps in work as a result, but they don’t “count”.

    But one of many examples (my own business, which has never employed anyone but put many people on the career ladder with strong credentials/reference, and which exports to the Republic but “officially” payment generally comes from local banks, is another example of one that doesn’t qualify).

    Therein lies the problem.

  • Occasional Commentator

    We need more enterprise, and fewer enterprise agencies. Every tax penny given to employers should simply not be taxed in the first place. End corporate welfare, and use the money saved to either cut taxes or spend on something useful (like education or maybe transport).

    Enterprise agencies simply do not, and are incapable of, subsidizing good or useful businesses. They simply draw up an arbitrary list of criteria and then splash out money (as IJP has demonstrated).

    Except of course Invest NI, who simply transfer the money into their own pockets – see also the Audit Office report. Is this the sort of thing acceptable in NI government? we shouldn’t just be arguing about ‘normal’ ‘criminality’?

  • seabhac siulach

    “Is this the sort of thing acceptable in NI government? we shouldn’t just be arguing about ‘normal’ ‘criminality’?”

    What NI government? The place is in free-fall…

  • Rory

    I don’t really understand IJP’s complaints. He complains that his friend, who moved to NI, where his particular market was known to be impenetrable cannot break into that marked and should be helped (subsidised?) to so do. He also asks that his friend’s promotional activities and travel expenses should be subsidised and complains that his own business does not qualify for handouts either.

    Now which is it, IJP? Do you want all handouts ended or merely extended so that you and your friends may benefit?

    If the latter, how do you say that that would assist an increase in gross value per head oher than simply shuffling public money around?

  • Mick Fealty

    I’ not sure there is an off the peg answer to the problem posited. It is not one that only affects NI.

    This paper, The Power of the Marginal is worth quoting though, in terms of government’s ability (or lack of it) to build economic capacity. He lays out a thought experiment of what might happen if government were get involved in a particularly ‘rule free’, creative area of life:

    Imagine, for example, what would happen if the government decided to commission someone to write an official Great American Novel. First there’d be a huge ideological squabble over
    who to choose. Most of the best writers would be excluded for having offended one side or the other. Of the remainder, the smart ones would refuse such a job, leaving only a few with the wrong sort of ambition.

    The committee would choose one at the height of his career— that is, someone whose best work was behind him—and hand over the project with copious free advice about how the book should show in positive terms the strength and diversity of the American people, etc, etc.

    The unfortunate writer would then sit down to work with a huge weight of expectation on his shoulders. Not wanting to blow such a public commission, he’d play it safe. This book had better command respect, and the way to ensure that would be to make it a tragedy. Audiences have to be enticed to laugh, but if you kill people they feel obliged to take you seriously.

    As everyone knows, America plus tragedy equals the Civil War, so that’s what it would have to be about. Better stick to the standard cartoon version that the Civil War was about slavery; people would be confused otherwise; plus you can show a lot of strength and diversity.

    When finally completed twelve years later, the book would be a 900-page pastiche of existing popular novels—roughly Gone with the Wind plus Roots. But its bulk and celebrity would make it a bestseller for a few months, until blown out of the water by a talk-show host’s autobiography. The book would be made into a movie and thereupon forgotten, except by the more waspish sort of reviewers, among whom it would be a byword for bogusness like Milli Vanilli or Battlefield Earth.

    Business and entreprise require creatives and rule breakers. Government’s are comprised of hierarchies that do much to protect certain (limited) public good.

    I’m not suggesting there is nothing government can do, but maybe getting out of the way of start-ups might be a start?

  • Shuggie McSporran

    Mick

    “Imagine, for example, what would happen if the government decided to commission someone to write an official Great American Novel”.

    It might just work if the US government stipulated that the author had to be born in Ireland and fled their cruel life in a Magdalen laundry, on board a coffin ship, worked as a double agent for the union army and the confederacy, and overcame adversity in the face of diversity.

  • Mick Fealty

    Shuggie,

    Hhhhmmmmm…. Nah…

  • kensei

    ““Imagine, for example, what would happen if the government decided to commission someone to write an official Great American Novel”.”

    And then proceeds to talk a plausible hypothetical. But it is as much your guess as mine. The government might chose someone new. It might give the public a say. It might open the position to tender. The writer might be radical. It might spark competition for all sorts of people thinking they could write a better “Great American Novel”.

    There are things to do done, and the government could do a lot to a lot help start ups, but this is just random bullshit.

  • slug

    Mick

    The chart in todays FT isn’t too discouraging, in that it shows that since 1997 NI has the lowest growth in Public Sector spending of all UK regions, and one of the highest growths in Private Sector.

    However the picture at UK level does suggest a real problem of divergence between the London core and the rest of the country, a divergence which I hope politicians and economists will start to take note of and come up with research into possible solutions.

  • George

    Slug
    look at the public spending chart and it shows it’s the highest per capita, it even has a colour all to itself, and the spending growth across all regions is pretty much the same over the last nine years. So no improvement there.

    Maybe the public sector didn’t grow by as big a percentage because it’s so huge already.

    As for private sector, let’s all hope it’s a green shoot and not just another Starbucks for the civil service wage packet.

    As for the disparity with London, Northern Ireland’s GNI is still 79% of the UK’s despite nearly a decade of superior growth. No change at all.

  • slug

    George the chart is at the bottom of the page in todays print version.

    Cumulative growth in real value added (1997-2003) in NI:

    Public Sector: 12% Private Sector: 18%

    1. Only four other UK regions have the latter bigger than the former.

    2. The 12% figure is the lowest of all UK regions and for example the figure for the North East is over 25% and for the East Midlands over 30%.

    I am not being complacent, just pointing out that public sector growth has been lower in NI since 1997 than any other UK region.

  • George

    Slug,
    I’m looking at the interactive online map on public spending not public sector growth, in other words how much money is being spent compared to the rest of the UK.

    There has been no reduction in public spending.

    Northern Ireland already has a huge public sector so I would assume that all we are seeing is a smaller percentage of an initially bigger figure in the public sector figure.

    Either that or the same amount of money is being spent for less public sector.

  • slug

    George – thats a nice online map.

    If you go to growth (private) and growth (public) you can see the chart I am talking about which also is in todays print version.

    The growth in public output has been very much lower in NI than in other regions – I think thats quite interesting.

  • kensei

    “The growth in public output has been very much lower in NI than in other regions – I think thats quite interesting.”

    The point I think being made is that it is relative – NI was not hit as hard by Thatcher, so it was starting from a higher base. In such an instance, you would expect relatively lower gowth compared ot toher regions, otherwise by this stage we’d be 905 state funded.

  • Greenflag

    ‘I’ve requested that VAT Registered figure for Northern Ireland from Invest Northern Ireland to see where we sit on the scale. ‘

    Now that should make interesting reading . Part of the Teesdale result has to be attributed to it’s history of having larger employers in the past -steel -coal and shipbuilding etc etc . Slough being in the West London conurbation would have had a more differentiated economic base and the people would have been exposed to many different types of work and thus opportunity .

    And the number is ?

  • Mick Fealty

    GF:

    No reply as yet. But these percentages on entreprenuership from DETINI are illuminating.

    NI ranks last on entreprenuership, with the Republic sitting just above the UK average. London and the Republic (as whole) are on a par. But look how far down that tail goes.

    Slug,

    Isn’t it similar to the one we included back in March?

  • IJP

    Hi Rory

    I want one of two things. Either:

    a) an enterprise agency that actually functions, subsidising useful things (like helping people to export rather than telling them to); or

    b) no enterprise agency, with the £180m budget used for it transferred to “useful things” (as per Occasional Commenter‘s comments).

    Good decisions in business are based on instinct, not “criteria”. No successful entrepreneur sits with a big tick list to decide on his/her next project, it’s simply a matter of judgement based on experience and instinct.

    Government of course cannot hand out money based on “instinct” – but it can facilitate others to do so!

    I hope that’s clearer, but do let me know if not. It’s an important subject.

  • Greenflag

    Mick,

    Thanks for that link . To summarise -money makes money and the money that money makes makes more money . The level of entrepreunerial activity in a particular region IMO is directly related to the immediate surrounding economy among of course other factors such as taxation rates , public sector spending levels etc etc . . Although I’ve no figures to back them up I’d suggest that if you looked at the ROI figures for the mid 1980’s we would not have been much better than the NI figure at least in respect of indigenous ‘entrepreneurs’

    The Swedish Social Democrat model relied on big and middle sized companies to provide ‘economic growth’. This worked in the world of the 1960’s /70’s and into the 80’s . But it is failing in the world of 2006 . Hungary’s Socialist leader has admittted ‘lying ‘ to the people about the State’s ‘finances’ in order to win the election and also admits that every Hungarian Government since the wall came down has been ‘covering up’ the harsh economic facts of life . The Irish Republic went through a similar ‘denial ‘ period 1973 through 1987 or so . At some point the Emperor has to admit that he’s naked . Inertia and the status quo are powerful forces .

    NI is fortunate/unfortunate in the sense that given it’s political position it can continue to ‘ignore’ the harsh economic facts indefinitely or at least so it is assumed . Getting from where it is to where it needs to be is a major challenge for any economy . Even more so for an economy with the heavy political baggage of NI -IMO. I’d like to think NI is up to the challenge but I fear not .

    There is not enough ‘will’ among NI leaders to make it happen IMO.

  • Crataegus

    Mick

    NI ranks last on entrepreneurship,

    No it doesn’t it shows that it ranks last among women among men it is actually quite high. Look at Figure 1 again. It’s all the shield maidens’ fault.

    I am of the view that most of the Enterprise Agencies are an utter waste of money and the amount of time and effort spent applying for grants and trying to fit into various criteria is a complete waste of time for many people. It is counter productive and fools the administration into thinking that it is doing something useful. If there are grants they need to be in a clearly targeted strategic sector with clear achievable targets. Kick starting small scale alternative energy production that sort of thing.

    What the government can do is ensure a well educated, literate and skilled workforce (and not just University based) good public services, modern transport and an efficient SIMPLE administration. Quick Planning decisions (an oxymoron) etc. The Government needs to have a clear overall strategy involving tax and development policy, money to kick start comprehensive, coordinated developments so that growth is across NI and is to a purpose. There isn’t the political will or even any clear idea as to what is necessary. Also it has to be about building the wealth based in NI.

    There also needs to be consideration given to the who voluntary sector, charities and all that.

  • Occasional Commentator

    I’m sure there are entrepreneurs who have been discouraged by the presence of these agencies. They might have a good idea and then immediately think “I’m up against companies who have government funding, therefore I won’t be able to compete unless I too can get funding, but I can’t be arsed with that grovelling to an ignorant civil servant”

    It doesn’t encourage entrepreneurs, it simply encourages people who like filling in forms and making presentations. If I thought there was a level playing field (no arbitrary subsidies) I’d be more likely to start a business. I’m quite happy to succeed or fail based on my product and my product alone.

    Crataegus,
    Spending money on renewable energy is a good thing, but is quite unrelated to these industrial development quangos. We subsidize those companies because we want less carbon in the atmosphere, just like we subsidize (or simply ‘pay’) construction companies to lay a road. Another approach would be to tax non-renewables. Both these examples are governments directly buying real stuff (roads or carbon free air) from companies. This is OK. The problem is when they spend money for nothing like trying to change the makeup of the economy via these (anti-)enterprise agencies.

  • Mick Fealty

    Crat, tough day…

    If I recall correctly, in 1999 the figure for the flow Venture Capital into Northern Ireland was 25% the UK average. Anything that brings local entrepreneurs face to face with ‘smart’ money is likely to produce smarter companies and workers.

    If government has a role, it might be more productive for it to play a facilitative role, rather than to expect to play active role in choosing strategic targets, or trying to spot the potential for fast growth.

    That is probably better done, as IJP notes, on instinct, and the commitment of private capital.

    Ken,

    “There are things to do done, and the government could do a lot to a lot help start ups”.

    Graham uses this ‘random bullshit’ thought experiment to demonstrate that some tasks projects can be done better 1. by individuals, and 2. people outside the current establishment who are in a position to break rules, unencumbered by ’eminence’.

    It is plausible to the extent that there has never been (to my knowledge) a classic novel commissioned by any complex bureaucratic structure, ever! The sharpest contrast to this ‘creative’ disposition is the kind that the professor at Durham University (quoted in the article above), “calls a ‘pervasive way of thought’ that only large companies offer security”.

    Is this our problem in NI? Or is it to do with a culture of political and economic caution arising from nearly forty years of conflict and edgey post conflict? Is it lack of shared communal security/trust? Or are we on a slow track to recovery that simply requires patience/time?

    The rest of that presentation is well worth the read btw. But I’d like to hear more of what you feel government could do to help start ups.

  • IJP

    Crat

    What the government can do is ensure a well educated, literate and skilled workforce (and not just University based) good public services, modern transport and an efficient SIMPLE administration. Quick Planning decisions (an oxymoron) etc.

    VERY well said.

    Mick

    It is worth noting, of course, that enterprise agencies are quite capable of hindering start-ups, as indeed is the public sector generally, if they are too overbearing and take a monopoly on “services” (e.g. export consultancy, educational materials for schools, translations etc etc) thereby denying competition.

    It’s not a universal, but generally the point of a liberal economy is that the market decides, not some bureaucrat with a check list on a clipboard!

  • kensei

    “Graham uses this ‘random bullshit’ thought experiment to demonstrate that some tasks projects can be done better 1. by individuals, and 2. people outside the current establishment who are in a position to break rules, unencumbered by ‘eminence’.”

    I still don’t buy it. I can pull a random example from my head about anything and insist it happens in a certain way. There is no guarentee it will be anything like that. In a sense it is counter productive because you can just go “What? That’s a complete pile of shit.”.

    “It is plausible to the extent that there has never been (to my knowledge) a classic novel commissioned by any complex bureaucratic structure, ever!”

    I’d be surprised if the Soviets didn’t have some kind of crack at it. But the point is, if the government wanted a pile of Great American novels, there are a l,ot of things it could do to get it. It could for example, financially support writers. It could gear the education system towards putting out a Great American novel. It could institute awards or rewards for the best novels produced. There would undoubtedly be an upsurge in writing due to incentives, and the chance sof having your Great American novel is much higher. The thought experiment is an ideological pile of wank.

    Not all government power is direct, and not all government power is centralised. And not all power that is weither of those things are necessarily negative.

    “The sharpest contrast to this ‘creative’ disposition is the kind that the professor at Durham University (quoted in the article above), “calls a ‘pervasive way of thought’ that only large companies offer security”.”

    Then that attitude is not going to go away overnight, or without correction. I have some sympathy with the view, because most startups fail. The problem is risk, and there are a number of things the government can do to help mitigate that. I also don’t think an agency that provides some information and contacts to potential entrepreneurs is a bad idea; merely the bloated and over ambitous agencies we have now.

    “Is this our problem in NI? Or is it to do with a culture of political and economic caution arising from nearly forty years of conflict and edgey post conflict? Is it lack of shared communal security/trust? Or are we on a slow track to recovery that simply requires patience/time?”

    The problem is lack of capital, and people concerned abnout the economic risks involved. It is one thing to take a punt on a business in a strong economy where you can be reasonably sure you’ll get a job if things go tits up, and the same strong economy gives and incentive to have a go. Money sucks money in.

    “The rest of that presentation is well worth the read btw. But I’d like to hear more of what you feel government could do to help start ups.”

    Money is a problem. There is an argument about competing with the banks or venture capitalists, but funding or part funding from the government at low rates is going to generate more economy by reducing risk. Perhaps tax breaks for comapnies or individuals that invest in start ups.

    I did a course on Innovation and Entrepreneurship as part of my Computer Science course at Uni, and we had to enter the 25k Awards as part of it. Now, while you might not gather it on here, I’m a fairly bright fella. But I’d never really considered starting a business, or what it would involve, or whether it was a good idea or how the hell I would get off the ground. The course and the Awards give me a taste of how you would do it. We didn’t go ahead with our project in the end but if the right oppurtunity came along in the future I might go for it in a way I simply would not have even considered it before doing it. Do that for enough people and tyou’ll start making an impact.

    Other stuff like cutting down red tape and tax for starting new businesses. UI also wonder if the government should just break monopolies when they arise and persist. You can argue that companies achieved them through fair competition, but it doesn’t really matter; they are almost always bad things.

    I would tend to view the whole problem in terms of education and incentive.

  • Mick Fealty

    Thanks Ken,

    “funding or part funding from the government at low rates is going to generate more economy by reducing risk”.

    The FT article basically argues that cultural aversion to risk is the base matter of the problem in Middlesbrough. The answer, it hints, is not to lessen risk but to encourage people to take more.

    Graham again:

    Being able to take risks is hugely valuable. Everyone values safety too much, both the obscure and the eminent. No one wants to look like a fool. But it’s very useful to be able to. If most of your ideas aren’t stupid, you’re probably being too conservative. You’re not bracketing the problem.

  • Occasional Commentator

    kensei:
    I’d never really considered starting a business, or what it would involve, or whether it was a good idea or how the hell I would get off the ground. The course and the Awards give me a taste of how you would do it.

    I’ve nothing against offering information, education and courses to people thinking of starting a business. Explaining VAT, listing possible ways to advertise, explaining the red tape like what insurance is required. The state make enough damn red tape, the least they can do is try to explain it clearly to potential businesses.

    But there is still no reason why the government should actually subsidize the business itself.

    I also despise the way the grants are targeted not only at particular companies but also particular forms of expenditure. Why does it make sense to subsidize their rent but not their heating costs? Do we want to encourage new businesses to be cold or something? If the startup can’t be trusted to make the best spending decisions with the money, then why on earth are we bothering giving them money in the first place?

    A vital part of a successful economy is killing off bad ideas ASAP so there’s more capital available for the good ideas (as judged by the market). Subsidizing ideas that would otherwise fail isn’t helpful.

    I’m in danger of repeating myself from here on, so I shall bid you all good night.

  • Crataegus

    Mick

    Kensei’s point about the current wealth is pertinent. Without finance it is very difficult to move forward and if you do so with loans you are saddled with a heavy liability when the economy goes into a slump.

    It is very easy to take risk if you are well heeled and have surplus. It is a lot harder if you could lose everything you have. In the distance past I had all sorts of fun trying to raise finance. Banks are a major problem for unless you have assets you are doomed. As for venture capitalists you need to be careful. My belief is that it works well in a business you intend to sell on and everyone makes a profit, but not one you intent to work in and where you may be stuck for life with a sleeping parasite.

    We should encourage Credit Unions.

    On monopolies under NO circumstances should you make a public monopoly a private monopoly. I say this with painful experience. Let’s take an example. Imagine you were building offices and the project needed a substation. You the developer pay the NIE for the substation though they then own it, but better than that though you have paid for it they will not order it until you can agree a lease for the ground to locate the sub station they will lease that back off you. Proof of title solicitors and all that. Why not fast track this and order it now, one asks as it’s my money so where the hell is the risk for you. We don’t do it that way as we may not agree the lease. But so what it’s my money. Unbelievable!! Ever considered the cost of temporary generators etc.

  • Mick Fealty

    Crat,

    CU’s are brilliant. They make things possible for people who have very little material resources. I take your point about differing conditions of economic cycles.

    But I really think we are looking at disadvantages, rather than the advantages of being ‘economic outsiders’, which is the key to the Graham presentation. (Isn’t anyone going to read it?)

  • aquifer

    The ‘ratio of spides to humans’ referred to previously on this site could be a key economic indicator.

    Maybe we should stop enforcing idleness and the expectation of reward for being incapable and stuck in the one place. Give the long term unemployed a break from self definition as unemployable by paying dole whether they work or not or whether they stay in the one place. The beneficiaries could be chosen by lottery, and given 6 months strings free. The effect on those remaining on the dole would be worthwhile too, posing the question ‘what would you do if’?

    Belfast in its innovative and industrial heyday was the social outsider to fashionable dublin. Being an outsider you can get really good at something odd, having no prospect of class elite approval anyhow. The peers of innovators and inventors are similar others. How many times do they get a big conference and a free lunch?

    Climatic factors matter, and maybe we should just provide startups and artists with heated sheds.

    Or we could capitalise on those only working 35 or so hours in the public sector by having them start or support businesses in their spare time. e.g. By teaming up with someone with more time during the day.

    Some are uncomfortable with the postmodern condition of outsider though, and retreat into outdated self definitions or even delusion. Some take Raymond Chandlers literary advice as practical: ‘When in doubt, have a man come through the door with a gun’

  • kensei

    “The FT article basically argues that cultural aversion to risk is the base matter of the problem in Middlesbrough. The answer, it hints, is not to lessen risk but to encourage people to take more.”

    That is, of course, a financial papers answer to the problem. In fact, the whole way of the world over the past 20 years has been topush risk form companies or government to the individual. I’m not sure it’s a good idea.

    “A vital part of a successful economy is killing off bad ideas ASAP so there’s more capital available for the good ideas (as judged by the market). Subsidizing ideas that would otherwise fail isn’t helpful.”

    I’m not sure ASAP is essential. It’s not just bad businesses that die. Lots of sound ideas die too, or have no hope of competing against bigger fish. Bad ideas will still die, but you are giving businesses more of a chance.

  • Crataegus

    There are times when I wonder about those that pontificate. I wonder how they would manage if stripped of all worldly belongings and then shoved into a Housing Executive house in Highfield.

    To move forward you need resources be it skills or finance and the question is how do you make access to such resources if not more equal certainly fairer.

    Also the idea that a completely free market coupled with adversity and law of the jungle stimulates growth and innovation really is fanciful.

    That said I would not be adverse to providing some encouragement to the long term unemployed or expecting some return for benefits given. We could also consider maximum employment terms in many of the Civil Service Departments. I think that would do more to prodding us out of complacency than any other measure for you are in all probability encouraging a sector that is educated and who have some resources and are potentially mobile, but then they may just leave to the South East.

  • Mick Fealty

    Ken,

    “I’m not sure it’s a good idea”.

    It is close to the base reason of how and why the Republic has transformed its own fortunes, and (ironically) undermined the key economic greivance the south might once have had over losing what was Ireland’s only significant industrial base in Northern Ireland.

    Nevertheless, it is important not focus on it as if it were the only possible way out for NI, and to, speculatively at least, sketch what alternatives there might be.

  • Occasional Commentator

    Talking of InvestNI, the following news article on the BBC is innaccurate. http://news.bbc.co.uk/1/hi/northern_ireland/5366502.stm
    It’s the headline news on the BBC NI site and I’ve already tried to complain but my employers block access to the relevant pages on the BBC site to submit a complaint.

    There are at most 200 ‘jobs’ to be created because of this. They get the figure of 400 by adding 200 jobs that have been created since 2005. InvestNI are simply funding them retrospectively for 200 people already employed. There is room for 200 more people to be employed because of this, but it could simply be replacing people who leave. Also, I am led to believe that there are already at least 1300, and maybe up to 1600, people already employed in NTNI.

    It’s possible that they will simply get the other 200 jobs by replacing people who leave over the next few years (this funding runs up to 2010).

    Altogether this means that at most 200, and possibly as few as 0, jobs are being created with this.

    Here is the internal announcement within NTNI:

    Invest NI Announcement

    Today, Invest Northern Ireland has announced further significant investment in Northbrook Technology. This is great news, as the funding will help us maintain our cost structure and remain competitive in a tight global economy.

    The investment is comprised of an employment grant and training grant up to a maximum of £5.6m. The new funding is for 400 additional IT jobs, on top of existing funding for 250 IT jobs in the Northwest and 850 IT jobs in Belfast. This will take our total IT funding capacity to 1500.

    The new funding is effective from 1 January 2005 to 31 December 2010. This means that 200 of the 400 jobs being announced are already in place, with funding available for 200 more to the end of 2010. This funding can only be drawn down against actual jobs created.

    The training offer is also effective from 2005, so a portion of the training funding is already allocated against 2005 and 2006 expenditure, including the IT reskilling programme. The training funds are applicable to Belfast, Magee and Strabane. This funding can only be drawn down against actual costs incurred for training or project transition.

    Although this will be a low key announcement, there is likely to be some media coverage if you want to watch out for it.

  • kensei

    “It is close to the base reason of how and why the Republic has transformed its own fortunes, and (ironically) undermined the key economic greivance the south might once have had over losing what was Ireland’s only significant industrial base in Northern Ireland.”

    I am not sure it is. The Republic lower tax rate produced a powerful incentive to invest there in a country that had good education and spoke English. In a sense, the tax burden was pushed from the company to the individual, and I accept that as an unfortunate cost of growth.

    But if you look beyond simple tax, lot of other thigs are being pushed our way as well. The risk of pensions for example are increasingly being pushed from the government and companies onto the individual. In the short run this will produce gains, but if in the long term we end up with more destitute pensioners it is neither good for society nor business. Also, the cost of university is shifted onto the individual rather than the state or comapnies, vastly increasing debt on young people. While we are somewhat protected by the NHS here, similar things are happenig all over the world in health. It would not be unknown for anAmerican family to be bankrupted or severely impacted by health bills, for example. All these things may be attractive in the short term, but have potentially dangerous or unknown long term consequences.

    The fundamental social contract between government, corporations and the indivdiuals has dramatically shifted over the past generation, with most of the risk being shifted on to indivdiuals. That is a somewhat scary prospect.

  • Lorenzo

    “Also the idea that a completely free market coupled with adversity and law of the jungle stimulates growth and innovation really is fanciful. ”

    At the global scale there is a *very* strong correlation between economic freedom and a whole slew of ‘quality of life’ variables such as life expectancy, infant mortality, unemployment rate, access to quality water and the UN’s Human Development Index. See details here (graphs at end).

    Of course correlation is not necessarily causation. Rich countries have better quality of life score. Rich countries are generally economically ‘free’. I would posit that rich countries became rich because they are more economically free.

    As regards government awarding grants for business, I think it only encourages one type of activity – the grant application industry.

  • Crataegus

    Lorenzo

    Consider China!

    All governments interfere in the market, it could be as simple as Government spending or sourcing which can cause abnormal growth in some sectors, or levels of tax but in China it goes well beyond that and few would argue that its economy is less than buoyant. Also if left to market forces we would all live in greater London and a government has to consider the equity and resources across the entire country. The market based approach is perhaps over simplistic but I think we agree about the various Enterprise Agencies.

  • Greenflag

    ‘The fundamental social contract between government, corporations and the indivdiuals has dramatically shifted over the past generation, with most of the risk being shifted on to indivdiuals. That is a somewhat scary prospect.’

    Yes and particularly in areas such as Health and Education it will have is having huge political ramifications . While I understand the ‘rant of the right ‘ that individuals should be more accountable for the choices they make as regards health /education (i.e pay for it ) I also understand as anyone would who has more than a passing interest in the medical , investment and educational fields that a large number of people (myself included) profess less than the ‘expert’ knowledge required to ‘manage ‘ my own pension fund while at ther same time making myself aware of the most economical health care choices and also determing what kind of education will benefit me in the future /

    I am expected to do all of this while at the same time work 50 hours a week to meet my livng expenses and put in an extra 5 hours work because the ‘health insurance’ company I work for (example not fact) can’t aford to hire any more ‘overhead’ because of increasing competition ‘

    In the areas of Health and Education my gut instinct tells me the Right is wrong whereas in business and wealth creation the same gut instinct tells me (based also on practical experience that the left is also wrong ,

    So overall it seems to me that we have to have a combination that works for our particular society at a point in time . Human beings all over the world have the same basic drives to learn, for financial security , wealth creation for some stability/certainty in life . These drives will be more or less intense in one area rather than another and will change in priority over time (Maslow ) depending on the local political and economic environment .

    I’m not suggesting that ROI got the combination ‘perfect’ but certainly they got it closer to perfect than in the 1940’s or 1970’s .

    Northern Ireland does not get the choice of picking the winning combination being a regional economy within the UK which BTW the Irish Republic was in all but name up to EU accession in 1973.

  • Occasional Commentator

    Market versus state control is nothing to do with rich versus poor. The most important thing humans need is food, not a health service. The food industry is by and large entirely in the private sector. In order to make sure that poorer people have food the government gives them cash. This is the right structure, unless someone is mad enough to suggest a totally state run National Food Service!

    Pension provision should be the same. Make it compulsory to put money in a pension and subsidize poorer people. It’s totally fair and it means people generally know what sort of fund they’re sitting on as time goes by. With the status quo, we are in the crazy situation where a worker knows his/her pension depends more on who’s in government on the day s/he retires than on any other factor. It would also give people a reason to vote for pension subsidy while they’re still working – surely a generation’s pensions should depend on who they voted for during their life and what decisions they made collectively, rather than hoping the young’uns look after them (just as they didn’t look after their elders!)

    Put simply, the Left (inasmuch as they exist as a homogenous group) will often lie when they lose the argument; they might say “but the market won’t look after group X”. They deliberately forget that the state can easily force nice things to happen in markets, just as they succeed in getting food from the private sector to unemployed people.

    Same with the NHS. We could have the NHS simply being a purchaser from a totally private sector hospitals. If Lefties think that will be less cost effective for the state come out and make an argument – just don’t hide behind the lie that it’ll mean poor people won’t get health bought for them by the state.

    I’m going to go lie down now after my rant. I could go on and on about other things too …

  • Crataegus

    Mick

    Being able to take risks is hugely valuable. Everyone values safety too much, both the obscure and the eminent. No one wants to look like a fool. But it’s very useful to be able to. If most of your ideas aren’t stupid, you’re probably being too conservative. You’re not bracketing the problem.

    This has been rattling around in my head and really its bunkum and it reeks of smugness. It has to have been written by someone who has never had any experience of real adversity or what it is like to be plain average relying on the pay cheque to keep the family feed and clothed. It is irradiate nonsense. If most of his ideas are stupid then perhaps papers should have the wit not to pay him for them. Was copy in that short supply?

    What some on the right advocate is the policy of desperation i.e. remove supports and get people off their butts, which has some merit, but like all ideas has to be set in context. You can’t have children in penury because their parents just can’t cut it in the enterprise culture. Can you? But equally make it bad enough and in desperation people can find that crime or drug dealing is a better and safer option than business. For remember that criminal activity is also a form of risk taking.

  • Greenflag

    ‘For remember that criminal activity is also a form of risk taking. ‘

    And is also directly related to the prevalence of poverty /relative poverty in societies around the world . Beware those who have nothing for they have nothing to lose . Admittedly I’m oversimplifing here but there is a reason why most of those behind ‘bars’ tend to come from poverty stricken backgrounds . Among other reasons this may account as one of the reasons why compared to the USA , European nations have percentage wise a lot less people in prison ?

    Having been ‘exposed’ to entrpreneurs from different parts of the world I am only too aware that ‘entrepreneurship’ is not for everybody and at most in my experience perhaps 7 to 13% of the population have what it takes psychologically apart altogether from capital , skills , and creative ideas. Entrepreneurs in my experience tend not to be good managers but those who actually grow their businesses beyond a one or two man operation need to be good at picking and ‘managing’ managers and employees .
    Obviously highly capitalised multinationals have got to where they are because at some point in the past their creator managed to survive .

    I’ve come across entrepreneurs who have failed in business three times before they became successful . In some societies that is easier to do than in others . Thus Mick’s point

    ‘No one wants to look like a fool. But it’s very useful to be able to.’ does have validity .

    The question which goes to the heart of developing an ‘enterprise culture’ is how can such a culture be developed while at the same time preserving what is called the unwritten ‘social contract’. Earlier societies like feudal Europe alos had a social contract . In return for a plot of land on which a feudal serf could grow enough food to feed his family his lord demanded that said serf had to give the lord a fixed number of days labour to sow and harvest his lordships lands . Plus of course the ‘first night ‘ privilige of the serf’s daughter at marriage . The RC Church looked the other way presumably .

    Today’s societies are more complex but at some level I think we all understand that if we reduce everything to ‘tooth and claw ‘ capitalism then sooner or later there’ll be another French Revolution? I read that in 1980 in the USA the top 1% of the population owned 8% of the wealth . Today that 1% owns 16% . Can this trend continue indefinitely ? I have the feeling that europeans because of their social and economic histories will not tolerate the wide diverging trend that Americans appear to ?

  • Lorenzo

    Considering China is indeed a useful exercise – it is only since they loosened their economic binds that have seen their wealth rise rapidly.

    I am not arguing for totally unfettered markets determining everything. I think the role of government extends well beyond the ‘defend the borders and deliver the mail’ model. Kensai makes a good point about more risks being pushed onto the individual – but I differ in seeing this as mostly positive. On the whole individuals will choose the option better suited to their own circumstances. For example I am lot happier managing my own pension than depending on the State to do it for me. Sure, it required educating myself about a very dull topic, but I see that as a small price to pay.

    In general States are not as good at providing services as the private sector. Let them fund the provision of those services to those who cannot afford it by all means but stay the hell out of the nitty gritty for god’s sake.

    For years we had a grant aided industrial culture in the republic and it did us shag all good. I can remember large stretches of the 80s where the IDA funded sector was constantly a net loser of jobs in the economy. Offer grants and you tend to get grant seekers who only stay in business as long as the grants do. Lower tax and bureaucracy burdens and you get real businesses

    As for dependency culture, that’s a post for another night.

  • IJP

    Spot on as usual, OC.

  • kensei

    “On the whole individuals will choose the option better suited to their own circumstances. For example I am lot happier managing my own pension than depending on the State to do it for me. Sure, it required educating myself about a very dull topic, but I see that as a small price to pay.”

    Which is fine an’ all, but in the long run it might fail as direct democracy (as opposed to representative) tends too – people do not have the time or energy to micromanage every aspect. There also comes a point where too much choice leads to paralysis.

    We could still be left with potentially a huge amount of poor old age pensioners with voting rigths. The government would be forced to address it and everyone loses. Currently the economic winds are favourable. But that won’t last forever, and I wonder how robust and compassionate our society is in a downturn, both North and South.

  • Greenflag

    ‘”On the whole individuals will choose the option better suited to their own circumstances. For example I am lot happier managing my own pension than depending on the State to do it for me. Sure, it required educating myself about a very dull topic, but I see that as a small price to pay.” ‘

    Fair enough for you as an individual. The experience of a lot of English people since it became possible to manage their own individual pension funds has been IIRC something of a disappointment . Many people fell for the colourful brochures with the 20 year projections and the pile of money at the end of it . This possibility came about IIRC around the Thatcher period . Many are now looking into the pit of false promises . They never did read the fine detail nor the fact that their investments were subject to high management fees etc etc not to mention the ups and downs of the market .
    Yes I suppose they can be blamed for not reading the fine print or not being clever investors but then even the so called expert financial planners don’t always deliver either .

    Strict State regulation of the financial services industry is also costly but absolutely necessary if people are to see their ‘pensions ‘ disappear or leech away through ‘over active ‘ high fee management and other practices which always seem to leave those who manage our hard earned money ensconced in comfort in the immense marble and glass palaces dedicated to financial voodoo in the Dublin Financial Centre or in LOndon’s City.

  • Crataegus

    I would not trust one penny to a pension fund manager and private pensions are fine in good times but if we hit a major recession do pensioners starve because the holdings of the fund have gone through the floor?

    For people like myself looking after my own finance makes sense, that is what I do, but I am not so sure that this applies to Joe average. There are too many dodgy financial advisers and a lot of people with vested interests in this one.

    On privatisation of health care yes it makes sense to privatise services like hip replacements as the private sector is good at specialisation and efficiency but it is utterly crap at long term care needs or mental problems.

    It really isn’t a simple matter of all state or all private. Privatise where you can but don’t get carried away and don’t create private monopolies.

  • Lorenzo

    “… private pensions are fine in good times but if we hit a major recession do pensioners starve because the holdings of the fund have gone through the floor?”

    A retiree’s pension fund is required by law to be converted into a secure annuity upon retirement – hence market fluctuations do not apply at that stage. As retirement approaches, a pension fund should be switched into lower risk assets. Careful selection of pension fund managers can get you a management fee of as low as 0.75% and no ongoing commission. People should be educated about this sort of stuff in school. Yes there are dodgy operators, but as ever, shop around. Some people spend more time researching a second hand car purchase than they do on their major financial decisions.

    If I can turn the original question around: If we experience a demographic crisis, do pensioners starve because there are not enough current workers to support the government scheme? This is what will happen in several continental countries.

    Essentially, social security type pensions are a (mild) form of pyramid schema: you pay in while working, the government gives the money to current retirees, you retire, the government takes the money being paid by the current batch of workers and gives it to you. This works fine when the pools paying in and paying out are in balance but if they get out of sync too much, the pyramid collapses.

    Put it another way, the amount I pay in PRSI would purchase considerably more of a private pension than I will get from the State. I know PRSI covers a bit more than just a pension, (I just never seem to be eligible for the benefits when I ask).

    I should disclose that I currently work for a fund management company but only on a temporary contract and only as a lowly techie. I certainly wouldn’t carry any candles for the industry.