One thought on “The Saturday Economist : UK Economics news and market updates 11th August 2012.”

1. The Need for a National Enterprise Council?

   Why was it that the Soviet Union succeeded in putting the first astronaut into Space? And yet, at the time, the United States was the most powerful economy on the Globe! An economy which was larger than that of all the other economies across the Globe put together. More important the vast majority of the largest Corporations in the World had their main manufacturing facilities located in and were headquartered in the United States. With the creation of NASA however, within a 5 year period, not only had the United States put a man on the moon but had also developed an unassailable lead in both the Space Race as well as the Strategic Arms Race. The lesson was that in the most dergulated and liberal market economy in the world it took action on behalf of the Federal Government to establish a coordinative institutional machinary for Private Sector Corporations to co-operate and achieve progress on a strategic agenda at a National level.

   I offer this thought in response to the tongue-in-cheek aside that John has offered in his Milton Keynes column on undercapacity in the UK economy. The problem with even the most insightful of Macro-Economists is that the apparent convergence in thinking about the performance of the UK economy is based on a conceit: the theoretical narrative which is used to explain the fluctuations which have been observed in first world industrial market economies.

   There are two strands of argument which underpin this narrative. The first is a slow but steady growth in output over time, averaging anywhere between 1.5 and 3.5% per annum depending on your Base Year. As the vast number of revisions by the Treasury to substantiate the legend of continuous uninterrupted growth during the Chancellorhsip of Gordon Brown demonstrates there is neither an accepted view of the precise date of Year Zero nor the precise length of Long Economic Cycles. Indeed the narrative doffs its hat at a theory of Long Economic Cycles at the expense of its revisionist younger brother which focuses on the Political Economy of Persistent and Continued Fluctuations in Outut which underpin Analyses of Slower Growth retarded by Structural Impediments within the Make-Up of the Economy. Such Fluctuations, it is argued, can be severe with output fall for sometimes significant periods of time, especially during Financial Crashes which conform to repititious historical logic. In this latter, more pessimistic Economic Narrative we should be less concerned in looking for the structural causes of undercapacity and instead accept that these are natural functions of an Economy which is contracting.

   The esoteric analysis that some Macro-Economists are engaging in shows how much our WorldView has become conditioned by an Optimistic View of the Economy which is based on both an expansionist internal logic and a view of Continued Progress. As Economic History demonstrates this is an inherently flawed and misconceived view of the world.

   This is why I particularly value re-reading Charles Kindleberger’s influential text “Manias, Panics And Crashes: A History of Financial Crises” in which he exhorts the reader of the necessity to continuously re-invent the institutional machinary of Economic Government in order to address the unique set of circumstances raised by Financial Crises which have demonstrated increasing levels of severity over the course of history.

   In previous posts I have eulogised the work of rofessor Richard Rose who almost two decades ago talked of the problems of Big Government. What he meant was the increasing inability of Politicians to Pull the Levers of Power to Turn the Drive-Shaft of Change. Bigger Government has led to increasing organizational complexity. There has been a Subdivision and increased specialization of Agencies responsible for the delivery of Policy. This has resulted in inter-agency conflict & boundary disputes reducing the effectiveness of policy delivery. Government has increasingly resorted to changing the structure of organizations (setting up another QUANGO or Programme each with its own favoured or designated delivery partner) to deliver policy rather than understanding the reasons for policy failure. The tendency has been to Change the Structure rather than Amend the Programme. The Result has been an Exponential Increase in the No. of Policy Programmes and an Increase in the Overlap and Contradiction between them. This has lead to Internal Conflict within Government about Economic Development Priorities and Goals. The greater the number of Stakeholders and Organizations and the greater the overlap between them, then the greater the conflict. The End Result has been Political Inertia & potentially Stalemate at worst. At best the reult has been massively extended Project Delivery Time Horizons Effectively what we are saying here is that Government lacks the effective machinery to solve the crisis.

   Part of the reason for the current undercapacaity in the economy or should that be economic performance may have as much to do with lacking the requiste institutional machinary in order, like NASA in the United States, all those years ago the problem of institutionally managing Big National Infrastructure Projects.

   Is it time, I ask, to create a National Enterprise Council made up wholly of Representatives from the Private Sector, Big Business especially in order to drive forward the kind of Big Infrastructure Projects that will revitalise the Economy and bridge the performance gap. NEDC failed during the 1970s because it was a Corporatist Tripartite decisionmaking body desigened to manage Industrial Relations and Wage Negotiations between Employers and the Trade Unions. In no uncertain terms am I proposing a return to anything approaching such a failed State-led version of Corporatism. Instead what I am proposing is a Business Led Model of Corporatism. This will entail very high levels of close knit co-operation cooperation between manufacturers, suppliers, distributors, banks and local government with active acquiescence of trade unions and employer engagement and participation. Education and Training will become much more Business Focussed. There will be a much greater focus on identifying and backing winners and Business Led National Infrastructure Projects with the Public Sector encouraged to Get Out of the Way as far as is possible. This will be the Ultimate process of Creative Destruction – Continuous Change Management of a High Growth Enterprise Strategy on the scale envisaged has not been attempted since the Victorian era.

   Such a Business Led Infrastructure Based Growth Strategy will ultimately force a rethink on Local Enterprise Partnerships and their current unhealthy level of dependence on the Public Sector especially as far as Bid Management for access to Regional Growth Funding is concerned.

   Such an approach will also force much greater responsiveness from Civil Servants. The Regulations concerning Accessing Funding are too Complex, the Process is Too Convoluted and it is Taking Too Long for Proposals to Be Evaluated and Decisions To Be Announced. Competitive Bidding It May Be but the Competitiion Element is Now Getting In the Way of Infrastructure Led Growth.

   Having Senior Representatives of Big Business firmly Embedded in the Treasury, BIS and CLG will be a salutory experience for Government showing what makes sense from a Business Perspective and What Doesn’t, especially for those Ministers with Little or No Business Experience.

   Am I Confident such a Business Led Corporatist Model of Growth will Transpire. Perhaps, not as much as I once was but if we are to address the problems of undercapacity caused as a consequence of the current structural issues which have resulted from the Financial Crash then we need as a Nation to be aware of the potentialities of Purely Business Led Solutions.

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