Will 13 Prove Unlucky After All?

 

There is serious concern that the sale of new cars in the UK will be reduced in the coming year because superstitious people want to avoid the 13 numberplate. Practical people may dismiss this as credulous nonsense but the prejudices of consumers, right or wrong, are still in their own right economic facts with which business has to deal.

In any case, even among the practical – especially among the practical – it is difficult to find anyone with serious business experience who is unworried about the year ahead. The euro looks shakier than ever. Italy’s technocratic but unelected government has retained the confidence of the markets but is in its last days: it will probably be replaced either by a leftist coalition under a former communist or possibly by the return by Silvio Berlusconi – neither a force for stability. In Spain, a new government trying to cope manfully with the consequences of its predecessor’s free spending faces huge unemployment. France’s attempt to develop an alternative to German austerity has been undermined by its reliance on a 75% top tax rate. The flight of that epitome of all things French, Gerard Depardieu, across the border to Belgium is symbolic of a general flight of confidence.

Any one of these three giants going the way of Greece and Ireland would be a greater catastrophe than both the latter put together – and any or all of the three could go next year. It will be a minor miracle if none of them does.

Before that, there is the small matter of America’s “fiscal cliff” to avoid. In a squalid bargain that does credit to no one, Democratic President Barack Obama and Congressional Republicans put off tough decisions on the budget deficit until after the elections. Now the elections are over, and tax cuts passed under the younger President Bush are set to expire. Almost no one in Washington wants that to happen, but President Obama, flushed with victory after his re-election, has initiated a very dangerous game of chicken.

He says he will veto the renewal if it includes the tax cuts on higher earners. Republicans who control the House of Representatives are pledged to apply the tax cuts to everyone. Whether they were wise to make such a pledge is beside the point: the political fact of the matter is that everyone remembers how the elder President Bush never recovered from going back on his equally unviable pledge of “no new taxes.”

Compromise is still possible, but there is very little trust and goodwill between the two sides. In any case, this is no way to run a global economy. Whether it is initiated in America, France, Italy, Spain, or one of a dozen other danger points, a crisis in 2013 is more likely than not, and this one will be down to the politicians, not the bankers and borrowers as it was in 2008. Hold on: it may be a rough ride in the coming year.

 

Predictions For 2012

Brazilian Snail

John Richards’s Predictions for 2012

Since our previous predictions have proved fairly accurate, I am going to stick my neck out and give some fairly specific best-guesses for the next year. I must give the health warning that these are only extrapolations of present trends, and do not take account of currently unforeseeable events – which, of course, always occur.

First, the good news: the world as a whole should avoid a full recession in 2012 – emphasise the word should. All the bad news should not be allowed to obscure the fact that global business is growing, albeit slowly. Recovery from 2008 should not be expected to be spectacular, but it ought to continue, so long as everyone keeps their heads.

Alas, the bad news is that they are unlikely to keep them in Europe. The latest scheme to save the euro, FU (Fiscal Union), does not address its underlying problems. I predict the euro will survive, but not in its current form. Sooner or later, its weaker members must leave the single currency, for their own good as much as the euro’s. Yet there will be more time and money wasted before the EU’s leaders are forced to accept this obvious truth.

I can also see no end to the economic stagnation of the United States. Political gridlock will continue until the November elections. President Obama will then be re-elected fairly comfortably – not because he offers any solutions, but because he has more money, because he retains the uncritical support of most of the mainstream media, and because his Republican opponents look more and more like a suicide cult.

The second terms of re-elected Presidents are usually disappointing: it seems unlikely that Obama II will come up with a real vision for America’s economic recovery given that there has been no sign of such a vision so far in Obama I. Mr Obama was elected on a platform of Change; his probable re-election will mean No Change.

However, there is now more to the global economy than the old Western Powers. A sign of the times is that Brazil has just overtaken the UK to become the sixth biggest economy on Earth. This is not a negative reflection on the UK – where the outlook is not too bad so long as the British can keep their distance from the euro debacle – but one more indicator of the massive power shift that is taking place in the world. That may be bad news for the moribund economies of the West, but good news for the rest of the planet, and for those American, British, and European businesses who see what is happening and look for new opportunities where the growth is.

The C-Word – Competiveness, Not Christmas

Consumers spending NL

We were told that business was relying on increased consumer spending over Christmas to boost the economy.

So we were told – by commentators with little or no first hand experience of commerce. Those of us who have been in business for more than a year or two know that an extravagant Christmas means an austere New Year – or, sometimes, vice versa. There is never something for nothing in economics. Simply waiting for consumers to spend more ignores the fact that their resources are finite. If they go beyond their limits, there is a price to be paid later – and if business profits from their self-indulgence, it must also pay its share of that price. That is basically why our economy is now so weak: we partied for more than a decade and now the bill has arrived.

More importantly, just hoping that consumers acting stupidly will solve their problems for them distracts businesses from trying to solve those problems.

There are two sides to economics, supply and demand. Most media commentary focuses on the demand side, consumer spending. Politicians are also obsessed with it because everyone is a consumer but only a minority are suppliers – and, in our materialistic democracy, high consumption is equated with happy voters.

Yet many of the problems in the West in particular – especially Europe, Britain, and the United States – are due to a failure to address the supply side. During the party years of high demand, the money kept on flowing – much of it borrowed but no one cared so long as it kept coming. Structural inefficiencies were increasing, but they were tolerated because no one wanted to be the party-pooper.

Now the cheap money is gone and we find ourselves in a far more competitive world, and the West is at a disadvantage. Much of our leadership is short-sighted. Executives are largely untrained and come out of university with unrealistic attitudes. Directors often pay themselves too much relative to their results. Workers in Britain and America in particular are poorly educated. Unions still impose restrictive practices. Government adds to costs, increasing risks and decreasing rewards, through excessive taxation and regulation.

Western businesses need to stop waiting for the next one-off spending spree and knuckle down to the hard, unpleasant, unpopular work of restoring their competitiveness.

FU Say the Politicians

It is a commonplace to say that the world would be better off without politicians. Of course no one really means it – but it may be true in the economic crisis that is now brewing. Our political leaders, far from averting this crisis, are themselves the cause of it.

The same was not true of the 2008 crisis. The politicians were a contributory factor then, but by no means the only one or the most important. The global economy survived that crisis and has been recovering, albeit very slowly, since then. The 2011-12 crisis is a new one and is entirely of the politicians’ own making.

A little local difficulty in Greece has been blown out of all proportion by European politicians’ obsession with maintaining the euro in its current form at all costs. The actual needs of the different national economies of the EU have been put second to keeping countries in the eurozone who should never have joined in the first place.

Leaving aside the question of the desirability of a single currency in theory – there is case for and a case against – the deal cobbled together in a panic by European leaders last week is not a sound basis for such a currency. Although EU leaders are right that tighter enforcement of the rules is essential to any single currency, the new proposals, called “fiscal union” (FU), leave the same holes in the deal that led to the wholly foreseeable collapse of the previous arrangements. The markets are now endorsing the position of the UK, which wanted nothing to do with it.

Meanwhile, the stupidity and egotism of Europe’s leaders seem to have provoked the competitive streak in their American counterparts, who appear determined to prove that they can be just as stupid and egotistical. Everyone is at last agreed that a cut in payroll taxes is a highly desirable stimulus to employment – something this blog has been saying for some time – so one would imagine it would pass without difficulty. Not in Washington...

For purely political reasons, President Obama and his Democratic allies tied the payroll tax cut to an increase in taxes on higher earners, knowing his Republican opponents are pledged to oppose tax increases. Rather than stick to the moral high ground, the Republicans, in their turn, tied their support for the tax cut to funding a controversial pipeline in the worst tradition of American “pork barrel” politics. Given that the Republicans were elected on a platform of cutting both taxes and “pork barrel” expenditure, their making the cut conditional on more expenditure is doubly inexcusable – at least the Democrats are being true to their principles, even if what they are doing in bad for the economy. Both sides have proved themselves selfish, foolish, and dishonest, but in different ways.

Looking at our “leaders” in general, even a law-abiding businessman must wonder if the anarchists may have a point.


So don't think you can fool me with your political tricks
Political right, political left, you can keep your politics
Government is government and all government is force
Left or right, right or left, it takes the same old course
Oppression and restriction, regulation, rule and law
The seizure of that power is all your revolution's for
You romanticise your heroes, quote from Marx and Mao
Well their ideas of freedom are just oppression now

Nothing changed for all the death, that their ideas created
It's just the same fascistic games, but the rules aren't clearly stated
Nothing's really different cos all government's the same
They can call it freedom, but slavery is the game

Extract from 'Bloody Revolutions' by Crass


11.11.11

Cheque annotated epayservice

Friday is 11/11/11 – for once a date that works in the American date format as well as that used by the wider world, for whom 9/11 technically means the 9th of November). Childish it might be, but many of us will not be able to resist the temptation of purposefully using the date somewhere, even if just for posterity, perhaps by writing out that increasingly archaic financial instrument, a cheque (or check in the American spelling).

Friday is also the day when veterans are honoured in the United States, and those who died in war are remembered in a number of other countries of “the developed world” – an expression that seems almost as increasingly dated as a cheque – including Britain, France, Canada, Australia, and New Zealand.

So it seems a fitting moment to pause and reflect. Could those who have died for those countries over the last hundred years have predicted the world we have today? Would they have approved of it? Would they be disappointed?

Perhaps if a Canadian or an Australian or a New Zealander from 1911 could have looked forward in time he would have been pleased to see his country today prosperous, dynamic, and fully independent. However, a patriotic American, Briton, or Frenchman of 1911 – or 1941, or 1961, or 1991, or even 2001 – might be quite shocked to see how much his country has declined in power and prestige.

Globalisation is a fact. The world is no longer the exclusive preserve of a handful of major powers run by white men. This is a right and necessary change.

What is neither right nor necessary is the crisis of confidence into which the old major powers have plunged as a result of this desirable development. For some years now, the United States, the United Kingdom, and the European Union have been living on borrowed money and the memories of past glories. Now both are drying up, and the West is drifting, lost and leaderless, in an unfamiliar world.

It is not too late to turn things around. The 1960s and 70s saw a similar loss of confidence and direction. Yet new leaders were found and old values revived, the Cold War was won with remarkably little violence, and the West went on to enjoy a prolonged period of peace and prosperity.

It could happen again, but only if we find leaders who are prepared to admit there are problems and face up to the challenge of making American, British, and European businesses competitive in the truly global economy we now enjoy. The world offers greater opportunities than ever – but only to those who understand that it has changed.

This Is Not The Crisis – Yet

We have been reluctant to post over the last week or two out of a very real fear that anything we said would be out-of-date a few hours later.

However, this does not mean that anything that has happened is at all surprising or incredible, as some in the media have claimed. On the contrary, we were not the only ones to predict that there must be severe consequences if European politicians did not face facts about the euro and Americans did not get real about their debts.      

Being proved right, again, gives us little pride and no pleasure – little pride because it was all so obvious that we do not deserve much credit for spotting it, and no pleasure because it is frustrating that such an avoidable disaster was not avoided.

It is doubly depressing that the politicians still have not learnt their lesson. The response of the European Central Bank, buying debt from badly run countries, is treating the symptom not the disease. Greece must be kicked out of the eurozone. Such a display of resolution might be enough to keep other failing members in. If not, the euro cannot continue as it is. Everyone knows this.

Everyone also knows that the American “debt deal” is nothing of the sort. It is full of holes. Referring the real decisions to a committee is a politician’s way of avoiding his duty. At best, it simply postpones the problem – like kicking the ball to touch in a rugby match so that both sides can catch their breath. At worst, it means that the big crisis is yet to come: the real fighting will start when the committee reports – if it ever does.

Given this prospect, Standard and Poor’s decision to strip the United States of its AAA credit rating is fair, albeit perhaps a little premature. The politicians who are complaining about it are in a state of denial. It was rude of Mr Putin to call America a parasite on the global economy for sucking up so much of the world’s available credit – but he was factually correct. It is shameful that the USA has now surrendered the moral high ground to a past KGB Colonel.

All that said, too much should not be read into the current market turbulence. For one thing, the big players agree that most businesses are slightly over-valued by the markets, so some readjustment is necessary. It should also be noted that it is summertime, when the players themselves are away, and nervous juniors are running the office.

Things will calm down soon – but only until the players get back to their desks and find that the politicians have not done anything in the meantime to solve the problems that are now all too obvious.

Get A Grip!

The markets are very nervous – and rightly so – about the debt crises in Europe and the United States.

Yet the frustrating thing about both crises is that they should be relatively easy to avert. They are not mega-tsunamis or planet-killing asteroid strikes that are beyond all human control. Nor are they mysterious: there is no need for a new Keynes to tell us what is happening, because anyone who can read a newspaper and do basic arithmetic knows exactly what the problems are. They are foreseeable and were foreseen, and indeed have both been rather unmissable for some years now.

Above all, they should be very easy to solve, given the political will. The solutions are not rocket-science. Everyone knows what needs to be done, and what will eventually have to be done.

In the United States, the government must stop spending as much as it does. The federal deficit is unsustainable. Sooner or later, there must be cuts, and there will be. Delaying the evil hour only makes it worse. Even the flawed Class of 2008 understood that there comes a time when unpleasant decisions cannot be put off.

In Europe, there is a limit to how much the more prudent nations can prop up the more feckless in order to maintain the pretence of a single currency. Does anyone, even the most sincere European federalist, really believe that Greece can and will remain a member of the eurozone indefinitely?

Everyone in the business world knows what has to happen. So – at least privately – do most politicians. So why delay? Everyone is agreed on the decisions that need to be made, so the sooner they are made the better.

Yet the political class seems paralysed with indecision. President Obama, obsessed with his re-election next year, has failed to take control of negotiations with Congressional leaders by advocating bold measures: once again, he has shown himself to be a reactive President, rather than one who seizes the initiative. Meanwhile, across the Pond, the European Establishment is terrified that suspension from the euro of Greece – and then probably Portugal and Spain, and maybe Italy and Ireland – will undermine the credibility of their whole cherished project of European integration.

It is tragic that in the whole pack, there is not one real leader with the guts to say, “We all know what we are going to have to do. Let’s just do it.”

For the real tragedy is that nothing magical is required here, only the courage and honesty to do what clearly needs to be done – in other words, leadership.

The Legacy of WikiLeaks – Part Two

One of the more amusing snippets to be found on WikiLeaks is a memo from a rather humourless American career diplomat describing a jolly-sounding lunch with Prince Andrew, the Duke of York, who was in Kyrgyzstan to promote British business interests.

The media tell us that the Prince has been “criticised” – for his remarks

...not by the business community! On the contrary, it is a pleasant change to see our business interests being represented by someone who sympathises with us and understands some of our problems. The American diplomat also refers to the Prince’s “unmitigated patriotic fervour” – which is just what any country would like to see in someone selling it abroad, and which one rarely sees in career diplomats. The Prince’s main points are summarised below in italics, followed by our comments.

1   “Doing business in Kyrgyzstan involves dealing with corruption.” Did anyone think any differently?

2   “...Just like France.” A bit unfair ... perhaps. France may not be quite that bad – but French officials certainly know how to make your life Hell if you do not play ball with them.

3   “Outsiders cannot change the culture of a country any more than they can cure someone of anorexia.” If only Western governments grasped this simple truth, a lot of unnecessary suffering could be avoided.

4   “Russia is playing the Great Game in Central Asia again and this time Western governments should win.” A brilliant analysis, putting current problems in their proper strategic and historical context, which has so far escaped the Western governments themselves.

5   “The media are not helpful when business deals are being negotiated.” You only have to look at England’s 2018 World Cup bid for proof.

6   “The British anti-corruption investigation of the Al-Yamama deal with Saudi Arabia was idiotic.” Self-evidently true.

7   “British and American governments plan for 10 years where people in Central Asia think in terms of centuries.” Another brilliantly perceptive observation.

8   “The British are better than the Americans at geography.” A generalisation to which there are numerous exceptions on both sides. However, British businessmen are generally pro-American and go to great lengths to find out about America, and are often shocked to find how little many American decision-makers know about the rest of the world. Our humourless American career diplomat seems to be a case in point.

A Vote for No Change

Businesses around the world – not just in America – are concerned about the continuing listlessness of the US economy.

This is one area where “Change” really is necessary. Yet Tuesday’s elections exposed how vacuous that word has become. It was Barack Obama’s slogan in 2008 – but this year it was the Republicans who were using it. Of course, what Mr Obama meant by “Change” and what the Republicans mean by the same word are two very different things, but what really matters to those of us who have to deal with the practical consequences is that major change of any sort is unlikely for the next two years.

Here are the hard facts. If the Republicans, who now control the House of Representatives, try to implement their idea of “Change”, it will be squashed by President Obama, who has power of veto, and by his Democratic allies who still control the Senate. If, on the other hand, Mr Obama still wants to push his own idea of “Change”, it is most unlikely to get through the Republican House.

It would be nice to think that this might encourage Mr Obama and the Republicans to work together for the common good. President Reagan was often able to charm Democratic Congressmen to vote his way in the 1980s, and President Clinton worked well with the Republicans on deficit reduction and welfare reform in the 1990s. However, there is little inter-party goodwill left in Washington these days. Whatever the rights and wrongs of the way Mr Obama rammed healthcare reform through Congress, it left him with no friends on the Republican side.

The irony is that all this might help Mr Obama. President Clinton faced a similar situation in 1994: after a disastrous start to his Administration, he lost control of Congress to the Republicans – and thereby saved his Presidency. A hostile Congress forced him to the political centre – where his Administration became more successful – while simultaneously giving him someone to blame. His party’s defeat in 1994 led directly to his own re-election in 1996.

Tuesday’s result has therefore made Mr Obama’s re-election more likely in 2012. However, unless he comes to a second term with a new economic agenda, real “Change” will be delayed for another four years. In the meantime, America’s enterprise culture will probably deliver a degree of recovery – in spite of the government rather than because of it: at least the squabbling among the politicians will mean they will have less chance to make things worse. However, all that time America will be losing her competitiveness, and the shift of global economic power across the Pacific will continue.

Please, Do Not Help Us

Britain’s new economic strategy is sound: cut the wealth-consuming public sector and expand the wealth-producing private sector.

This is no more than simple common sense. Yet the UK’s public sector has been expanding for years while the private sector has not been growing as it ought. The laws of mathematics tell us that the inevitable consequence of increased expenditure and insufficient income is debt. It is a shame that it took a recession to force Britain to face that reality and try, at last, to reverse both trends.

The problem is that, in adopting this laudable strategic objective, Britain’s new Coalition government has no idea how to achieve it.

Here is how to do it. Do not try. Just let business get on with it. If the politicians and bureaucrats would leave us alone – and by that we mean take away all their meddling, interfering regulations, rules and compliance burdens – the private sector would not only achieve their objective of taking up the slack of the reduced public sector but would go on to expand far more than their narrow little minds could ever imagine. History proves this.

However, the politicians do not really have faith in this. Unless they are prepared to act on their words, business will not be able to take up the slack. The strategy will then be perceived to be failing, then blamed, then abandoned – without really having been tried.

If they rely on business, they must trust it. They must take us seriously when we say that legislative interference like the “Equality Act” in the UK, the maternity proposals of the EU, and the poorly drafted healthcare reforms in the USA, will prevent us from completing the tasks they have assigned us, to generate income and employment.

They must also understand that no government schemes or spending programmes designed to “help” business can make up for that interference. For President Obama to tout a “Small Business Bill” after approving the pork barrel of the stimulus package and federal healthcare is like shooting a man in the guts and then offering him a Band Aid.

Similarly, the language of the new British government is suspiciously reminiscent of its unlamented predecessor, which thought a few handouts to selected businesses – its friends – could compensate for increased tax and regulation that drove businesses and jobs abroad.

Message from Business to Government: Yes, we can take up your slack for you – but only so long as you do not try to “help” us – just get out of our way.

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