He really does seem to have a very odd idea of an economy:
but the pace of economic recovery will be affected significantly by the banks\’ attitude to lending – and whether their historic aversion to lending to support manufacturing innovation can be changed.
It is of course possible to have a banking system which lends in aid of manufacturing innovation. The Germans do to an extent. But the question is, why would you want this system? We have a different one, where such innovation is funded either through equity or bond markets. This is something Hutton never really discusses, why he\’s so wedded to this Rhineland model of capitalism. He simply assumes it is better.
Otherwise it will be business as usual – a British economy too dependent on finance and property and not on making goods and services.
Err, finance is a service and we\’re the global hub of it. There\’s no particular problem with our specialising in finance rather than, say, manufacturing. Both episodes of globalisation have seen us do so while Germany does manufacturing. And given that currently incomes are higher in finance than in manufacturing we\’d be poorer by switching focues. Come along now Willy, this is simple comparative advantage and trade, nothing else.
British bank lending is almost entirely focused on mortgages and consumer credit, with virtually no support for investment and innovation. The ideas we hear to guarantee lending for small businesses and enterprise presuppose that banks do such lending. They do not.
Quite, and yet business still gets funded: we just don\’t use the banks to do it. We\’ve disintermediated this market: your problem with this is what?
There\’s a very odd contradiction at the heart of Willy\’s proposals: he says the banks are too big for their boots, the banks are too big for the economy: and yet he wants them to take on a new and gargantuan job, financing industry. Thus making them bigger. Eh?
But do you accept that the City has become too large and too risky for a country our size?
Comparative advantage and trade again Willy.
Every graduate who goes to the City to make millions, their potential losses guaranteed by the state, is a graduate lost to the rest of the economy.
Revealing: graduates should do what is best for the State should they, not what is good or graduates?
Now for your challenge. I think the next government has to build an architecture to dynamise innovation and investment. The decades ahead are going to see exponential growth in technologies from the life sciences to energy, which we must exploit to create tomorrow\’s Rolls-Royces.
This means a huge increase in investment in science and technology and in particular for our top 20 research-based universities.
Err, science is a public good. It doesn\’t matter who or where this gets done. It\’s available to all. That\’s exactly why there is public funding for it.
What is your view on Britain\’s business culture? Do you agree that we need committed owners and not greedy transient shareholders? We need to dismantle the apparatus that makes it so easy for companies to be taken over, reform corporate governance to stress long-termism. Will you require firms to declare their business purpose?
Lovely, no? He wants you, the shareholder, to lose your ownership rights over what you own. Instead of it being your property to dispose of as you wish he want\’s it to be Will Hutton\’s property to be disposed of as he wishes: and he wants the law to be changed to make it so.
Britain should say no to Kraft\’s attempted takeover of Cadbury on competition grounds; we don\’t want another deadbeat foreign monolith strangling competitive dynamism.
He\’s an economic nationalist too. But quite how you can be screaming for more investment in British companies while simultaneously insisting that Joyhnny Foreigner cannot invest in British companies is a little beyond the wit of man to divine.
But the basic points shine through: Will Hutton knows how to run British business better than British business does. And the law should be changed so that he can run British business.
Given that the Work Foundation has been cannibalising its own capital base since he took over and his wife\’s fortune has been made entirely from property speculation his insistence upon his omniscience may well be misplaced.
Seems obvious to me. Companies, manufacturing or otherwise should get capital in whatever way is best for them- be that by shares issues, bank loans, recycled profits or whatever- and by and large they do.
Banks should lend wherever they get the best return be that to manufacturers, governments, or property purchasers- and by and large they do (absent forced loans to government).
If it happens thaat a particular firm can get money cheaper elsewhere it is hardly helpful to force them to borrow from banks. If banks can make a better return elsewhere then why should they lend to that firm. And if the firm can’t raise capital at all then perhaps it’s a turkey that needs to be carved.
Just a thought- how many bank workers are affiliated to the TUC, who are after all paying for this.
“He’s an economic nationalist too.”
British or European?