How to Get Growth
If you were suffering from a disease you did not understand, would you consult a doctor with six years training or a quack with no training at all? Translate that metaphor to the economic growth politicians claim to be so necessary for paying inflation-proofed wages and funding the increasing tax take. Should you consult those with long experience of creating business or ministers who have had no training of any kind for their positions? The departmental civil servants are not much help: they just restrain ministers from their dafter ideas as distinct from implementing what might work. That is why nothing happens. Nuclear power stations are identified as essential but work does not start for 20 years. In 2018, the Home Secretary declared that migrants crossing the channel in small boats was “a major incident” and she would put a stop to it at once. The numbers have grown dramatically since, aided and abetted by the judiciary who declare attempts to export them to be illegal. The idea that the illegality could be addressed by changing the law is too subtle for the Home Office.
My point, obviously enough, is that if you want a new shower installed, you should ask a plumber, not a carpenter. Another Think Tank, which should remain nameless, is organising a major event to consider how the UK achieves growth. It has identified the key aspects for discussion as regulation, trade, investment, enterprise, tax and financial services. Getting these aspects wrong undoubtedly impedes growth but does growth automatically follow from getting them right? Or are these just things politicians like to talk about?
One definition of enterprise is taking on financial risks in the hope of making a profit. But that puts the emphasis on risk. I do not know a single successful entrepreneur who started by looking for risks to take on. Yes, of course, new ventures are risky but that’s just an undesirable side effect. The entrepreneur and her banker would rather it wasn’t.
Financial services similarly are side effects. It certainty helps to have access to finance although access to too much finance is dangerous. That is one reason why government sponsored new ventures usually fail. Bernard Matthews told me, and just about everyone else he knew, that in May 1950 he started what became a fabulously successful turkey business by buying 20 eggs and selling the 12 chicks that hatched to a neighbour for half a crown.
Tax is not a thing the successful entrepreneur thinks about at the beginning. You have to be making good profits before it becomes an issue but I do know one exception. The CEO of Gilbeys Ireland was pally with their Finance Minister who, over a boozy dinner, told him that if he launched a successful export brand, the profits would be tax-free for 10 years. Bailey’s Irish Cream was the result. The real point of that story is not that the launch was driven by tax but by human interaction. Innovative new business comes from the people you interact with.
There is not enough time in this blog to debunk all the conventional “wisdom” that rattles round Westminster about how growth should be achieved. Innovation and productivity are the keys and neither word appears in the list above. Ministers should study how growth was, hitherto, achieved in the real world. What brought it about? It is certainly good to remove the obstacles, regulation in particular, but understanding how it is really generated is far more important.