This is a fascinating read. This guy, a former chief economist at the IMF, argues that politicians were only too glad to encourage the growth of credit. They positively encouraged it. Why? Because it masked growing inequality, and inequality is something the political classes in both the US and the UK are unwilling (or unable?) to deal with.
He is one of the few people I have read who focuses on inequality as being the hidden driver of financial instability. Unless we address inequality in this country, we are going to divide our nation even further and condemn millions to a life of poverty. This is an unacceptable prospect.
Far from addressing the inequality issue, the coalition is in the process of exacerbating it. George Osborne has poked his stick into the hornet’s nest. He and his cohorts should not be surprised if they get stung.
As an aside, I came across a great quote the other day, it’s by Edith Wharton:
“Affluence, unless stimulated by a keen imagination, forms but the vaguest notion of the practical strain of poverty” Amen to that!
Today, you are either a digital native or a digital immigrant. If you’re under thirty you’re definitely a native: you speak digital as a first language, digital is in your blood, you inhabit a completely different world to the rest of us.
It’s taken a bit of time for us immigrants to catch on to the importance of being digitally literate, but with e-commerce now 7.2% of GDP it shows that old dogs can learn new tricks after all.
However, there are some powerful old immigrants with well established businesses who are finding it difficult to understand how to adapt their products to be attractive to digital natives. Even semi-digitally literate immigrants are becoming more difficult to please.
A prime example is Rupert Murdoch’s attempt to get people to pay to read The Times online. Results out this week would seem to indicate that they are not prepared to pay for what he has to offer.
The Times online offer is a perfect illustration of immigrant ignorance – and arrogance too. Just to stick The Times on a website, give it a few tweaks and expect people to pay for it, lacks imagination and reveals a worrying lack of understanding about how to generate interest – and revenue – on the internet. It’s a very lazy response to a golden opportunity. The result looks as if as if a digitally ignorant immigrant has been directing semi-illiterate immigrants to produce a product for natives whose language they do not understand.
I would suggest that if The Times Online is to succeed, it has to be a completely new product, innovative, interactive and exciting. It has to have new ideas and create new markets. It has to have an ‘i-pod / i-pad’ excitement factor that has people queuing up to subscribe. If it did, no journalist working for The Times need have any concerns about their long-term future.
By the look of it, it’s time News International gave their creative thinking processes a good overhaul. I would suggest they learn to do some divergent thinking i.e. exploring a multitude of possible answers to a problem, developing the ability to see lots of different interpretations and to start thinking laterally – it’s similar to Charles Handy’s upside down thinking. Times Online is linear or convergent thinking, and it has not delivered.
If Rupert Murdoch had said “We need to create a product that people really want to pay for” and started a process to create something new and very special rather than saying “why should people get good journalism for free”, Times Online might have been a very different product, but he gave readers of The Times the wrong message, and his staff the wrong attitude.
As I said in my previous post, Rupert Murdoch will probably make the Times online work if it kills him, but it may be a very different animal by the time he’s finished. It needs to be. Last week he accused us Brits of being ‘small thinkers’ – perhaps he is presiding over too many ‘lame thinkers’?
“I do all the pleasing with you, It’s so hard to reason with you, Why do you make me blue? Please, please (pay) me!”
Rupies lament? It might well be. He’s probably feeling more than a little blue after learning that Times Online readers are reluctant to climb his paywall. In the first quarter since building work was completed, Times Online averaged 1.78 million visitors a month compared to 3.1 million in the previous quarter, a drop of 42%. Even more galling is the fact that a very extensive advertising campaign has failed to convince Times Online readers to put their hands in their pockets.
Rumour has it that scribes at The Times are more than a little jarred off at the loss of online readers, as well they might be. Will we see a grand exodus of talented scribblers? Probably not. Those who have worked for Citizen Pain know that he never gives up. He will make Times Online work whatever it costs and however long it takes.
I think he has made a fundamental miscalculation. The internet generation are much more savvy about how they spend their money online. They have learned the hard way how a subscription here and a subscription there can soon mount up and leech money from their bank accounts. They are becoming very discerning about what they sign up for. Paying to read a newspaper, no matter how much they might miss reading their favourite columnist, is something they now think twice about. Yesterday’s figures prove it, don’t they?
There are many ways for online newspapers to extract revenue from the internet: several major titles have become very accomplished at doing so. I’m sure they are very heartened by the Times Online figures. Erecting a paywall doesn’t seem to be a very good idea after all – unless you happen to be the FT or the Wall Street Journal who supply specific market data. I’m sure Rupie will make Times Online work if it kills him, but it may be a very different animal by the time he’s finished.
Most businessmen will tell you that banks are quite happy to lend you an umbrella when the sun is shining, but they take it away at the first sight of rain. Far from increasing their lending to small businesses, banks are at this very minute taking back their umbrellas.
The economy may have grown by 0.8% in the last quarter, much more than was expected, but bankers sniff rain. A huge rise in unemployment looms, VAT is going up to 20% in January, the housing market is running out of steam and consumer confidence is starting to nosedive. Let’s have your umbrellas please!
David Cameron said yesterday that he didn’t hold with banks that withheld cash from stable firms. Vince Cable went on to say that “maintaining a flow of credit to good creditworthy companies will remain central to my agenda”. This all sounds good stuff, but notice the words they use…‘stable’ and ‘good creditworthy companies’. They are not wrong to use this qualification, but two years ago the banks turned many stable, good, creditworthy companies into unstable, bad creditworthy companies overnight.
So what did they do? They withdrew or severely reduced their credit facilities, increased their charges and renegotiated outstanding loans at usurious rates. On top of this, these companies had to contend with a severe drop in sales and a tightening of their cash flow. The banks were the cause of the problem, and then went on to make their customers pay for their mistakes.
What is to say that the ‘stable and good creditworthy companies’ that have weathered the storm are not going to suffer the same treatment again? It doesn’t look good. The record shows that banks continue to be less than helpful towards small businesses. Many have survived despite the behaviour of their bank, but their ability to do so again if they are not supported through the coming tough times, is questionable.
Politicians may scream and yell as much as they like about banks not lending to small businesses, but they are failing to address the behaviour of the banks at local level. This is where the real damage has, and is being done. They need to take a long hard look at the terms banks have imposed and at the terms on which they are prepared to lend.
A banking ombudsman for small businesses might be a good idea, although many small businesses may feel intimidated by the thought of the retribution that would exacted upon them should they dare to complain.
The banks have defended their failure to improve their lending to small businesses by saying that small businesses don’t want to borrow. These are weasel words. Many small, businesses are still labouring under extremely tough historical lending terms. They have experienced first-hand how banks behave when times get tough and they are reluctant to get involved with their bank any more than they have to.
The bottom line is that our current banks are really not bovvered about small businesses. They are a time consuming bore and they don’t make much money – at least not compared to the casino boys in investment banking. It’s time that retail banking was split from investment banking. New banks need to be created: we need more competition between banks. We must have banks that cater specifically for the needs of business, small and large – preferably with state involvement in order to ensure that businesses are nurtured and supported in good times and in bad. Germany, whose economy is set to grow by more than 3% this year, has always had a policy of positively advantaging business. We need to do the same. We need to start sorting out the banks – now!
David Cameron has just promised that he will pursue a ‘forensic and relentless’ approach for future growth…that over the course of this Parliament – and the next – he believes he can transform our fortunes. That’s absolutely great Dave, but what about now? Have we got to get into the hole before we can get out of it?
What is depressing is that there doesn’t seem to be anywhere near the same effort and focus being put into a plan for growth as there was on last week’s cuts. That can’t be right. If we’re going to have any chance of avoiding a double-dip recession and not making a bad situation worse, we need some big ideas, and in very short order.
Edward Prescott, the economist and Nobel prize winner observed that ‘to spend is to tax, to tax is to depress’. Without a serious plan to boost the economy, George Osborne’s tax increases and spending cuts are going to snuff out any signs of recovery. They’re going to lead to an increase in government debt because tax revenues are going to plummet. Things will get worse, not better. Without a plan to boost growth we are up a creek without a paddle.
What about another dose of quantitative easing? QE is meant to free up more money so that it can be lent to consumers and businesses at favourable rates. All good stuff, but so far banks and institutions have put the money in their pockets and raised two fingers to the rest of us. More QE would probably have the same effect.
So what’s the answer? The answer in the short-term has to be to boost confidence. How? By putting a huge amount of energy into a plan for growth. Much, much more than was put into the plan for cuts. If people can be reassured that there is a strong tonic to overcome the effects of the medicine, then there is every chance that confidence can be kept high and government revenues can be maintained. Then we need some very, very big ideas for future growth. There was no evidence of them today. Rupert Murdoch said last week that we are a nation of small thinkers. Isn’t it time to prove him wrong?