OK, let's Talk

Inspired by: BBC article on the St Paul's protest

Reading on the BBC website today about the occupation of St Paul’s by the, apparently peaceful, protesters at the way our country is being run for the benefit of a few rather than that of the many, it seems time to make my own statement.

I note with relief that the effect it is having is to get people talking about the problem rather than starting more fires in the London streets. And this is a good thing. It is about time this was discussed in a constructive fashion. The time for finger pointing and party politics is past, and we need to find ways of dealing with the situation locally, nationally and globally.

In fact the time passed sometime around the turn of this century when the economic bubbles kept forming and popping. When the governments first realised that, to keep people voting for them they had to promise things they couldn’t deliver. When the final pieces of the family silver were sold off by our government to pay for these promises, and they had to fall back fully on the private sector to bail them out, which they did by encouraging businesses to show bigger and bigger profits that were lapped up by the hedge funds and pension funds on promises of yet further wealth for the masses.

I remember thinking at the time; “how can this work, where is all the money coming from?” But I had no economic qualifications and was bad at writing my thoughts down and who would listen anyway? Besides, this was such an obvious question that surely those in the know were asking it too. Well, maybe they were, but it seems as if vested interest was skewing the answers. It turns out that my question was a pertinent one. I wish I had asked it out loud at the time.

Anyway, here we are, in a pretty awkward situation which appears to have no solution. This is, of course a false impression. There is clearly at least one solution – that of economic meltdown and the slow rebuilding of confidence and wealth. I don’t like that solution, partly because I don’t think we will learn anything new that way, but mostly because it will be extremely unpleasant for very many people (including me) and there is no guarantee that the final result will be a place where any of us would want to live.

So, let’s not blame, let’s not get angry, let’s not despair. Let’s just see what we can do.

Legislation is important. But it needs to be the kind that will work and build confidence and not a rushed stop-gap measure. This really does need to be talked through in detail and this will take time. But we don’t have to wait for legislation. We can start now by engaging the businesses, in particular the finance sector and the large funds, to start to make a difference voluntarily. Without the backing legislation in place, this means that it needs to be somewhat in their interest to make such a difference. For this, I am sure that a proper public awareness campaign of the sort of things that will work in everyone’s favour will help nudge businesses in the right direction.

So, discussion is important too. But this discussion must not be restricted to the economists, businessmen and politicians. We need articulate people, of good temper, from the rest of society to join in as well. And not just to be consulted, but intimately involved in all the committees and other meetings at all times. We need the results of those discussions to be as public as possible so everyone can see that they are directed towards a solution for everyone. This is not about politics or vested interests, but about what can and must do to restore the faith of the masses.

For the record, here are a few ideas that we might start with from a non-economist. I am by no means certain that they will make the required difference, but they seem to be pointing in the right direction and could at least form the basis of some discussion.

The customer is the first priority of a business.

Shareholders need to learn to take second place. In theory they are low down the pecking order in a case of bankruptcy, so I would guess that the original intention was that they should not be able to turn the direction of a business from its core competency to that of making money for the shareholders. But in reality, since they ultimately own the businesses, they can and often do force a business to concentrate more on paying good dividends and keeping their share prices going up than on what their customers actually want. This can only be bad in the long run.

We need to be creating things that are tangible, not ephemeral

The allure of selling serivces and other intangible things is that the raw materials are cheap. But, in the end, what creates wealth is things. If there is nothing tangible to show for our work there is very little to fall back on when things go badly. The trend of cutting back on manufacturing over recent decades needs to be questioned and reversed by some means. I know materials are expensive and manufacturing traditionally works because the manpower requirement is relatively cheap, but some radical thinking in this regard needs to be done. If the world goes sour, we need some real things that we can call our own.

A business without any customers is not a business

There is a trend to invent various businesses whose only purpose is to satisfy some specific or regulatory need for the people who created the business. These are the so-called ‘special purpose vehicles’ (SPVs).  Any attempt to create an SPV should be looked into rather thoroughly by regulating authorities and by the businesses themselves to find out what they are really doing to the company and if they are distorting its books in any way. Companies should strive to simplify their structure in this regard and operate with the minimum number of these vehicles. If a company structure doesn’t fit on to one side of an A5 sheet of paper, people should ask why.

Perhaps mergers should be discouraged for now

Not stopped altogether, but the motives should be understood thoroughly and approved before allowing them.  What we need more of is competition. This is the one of the few incentives that companies have to keep the customer at the forefront of their daily business. Mergers can be used to inhibit competition. As far as the customer is concerned, lots of smaller businesses should be a better deal than a few mega-businesses. Also, as long as the shareholders allow a business to put their customers first, a customer centred approach need not necessarily cut into the company’s finances. There are surely more ways to attract customers than simply having the lowest prices. Let’s get inventive here.

We need small businesses

Small businesses are good for the economy. They have to be – they create jobs and they have to serve their customers well or they don’t survive very long. We need to make it less scary to start up a business. There have to be more ways than venture capital, prohibitive loans and putting your house at risk. Maybe banks can start up business savings packages in the way that we used to save up for that deposit on our first home. Save now to be able to start your business at favourable rates in 5 years’ time.

We need a gesture of faith

Company directors and the wealthy need to indicate that they are with us in this situation. No amount of quoting numbers at us will dispel the feeling that they have let us all down badly. Even if a director’s pay is a fraction of a per cent of the company’s expenses it merely seems to most of us that they don’t care to help as long as they can cream off enough of the company funds to make their lives easier. In most cases, even if the company collapses, they will be alright. The same cannot be said for all the other employees. Maybe, if, instead of taking a bonus, that same money was paid into some employee support fund, it would show that they care. And who wouldn’t want to work for an employer who cares for its employees? I am sure that an inventive board could think of additional ways to show their solidarity with their workforce.

The public also needs to be responsible

Yes, we benefitted from the bubbles as well. There was high employment and cheap gadgets. There were also suspiciously cheap loans. We had the ability to put our hands on more money than many of us would have earned in a lifetime. We should have asked how this was happening. I suppose we didn’t because we liked it and because we were assured by the governments and financial institutions that it was due to brilliant and innovative strategies and that there were sufficient and rigorous controls on what was being done. Ha ha.

As the majority shareholders in our world, we owe it to ourselves to look more closely at any miracle that comes along from now and ask what the true cost might be. We should not buy everything simply because we are told we want it and should conduct our financial transactions with a view to being able to afford what we buy.

Close the poverty gap

This is hard on those with a low income. Somehow we need to make it easier to move both up and down the social ladder. This means more opportunity for the less well-off and less fear of moving down the ladder for those with money now. There is, after all, only a finite amount of wealth. Most of the apparent growth in the available wealth has been to make the numbers bigger, but that doesn’t always mean you can buy more. If someone gains wealth someone else is certainly losing it. The more we close the gap, the more manageable and bearable this fact will be. However, I don't think there is any magic wand. Because wealth is finite, we all need to be prepared to donate to this cause.

In conclusion (for now)

These are just ideas and points for discussion. I don’t know if any of them are new. What is important here is that those with the expert qualifications clearly need some new ideas and those will not necessarily come from within their ranks, nor should they. Let’s not be angry at them, they are doing their best and may well come up with the working solutions. But let’s join in the debate too without shame and without fear of being called stupid. Who knows what chance remark will be the seed to our renewed and prolonged stability?