We’re getting rather fed-up of the instant orthodoxy that
has built up about the need for banks to start lending to small businesses. It
seems to us that someone made this pronouncement as a cure-all for getting out
of the recession and everyone else has jumped on the band wagon without thinking.
We take a contrary view. What is killing businesses the
world over, not just in the UK, is their fixed cost base. This stays rigid as
their sales decline. What businesses need to be able to do is convert many of
their fixed costs to variable costs. Governments should be looking at how they
can facilitate this. Obviously any tax on employment is utter lunacy – as we
have already posted – but things like business rates (in the UK) ought to be converted
into regional profits taxes, if not abolished outright.
Cashflow gestures really just put off the fateful day. If a
business is unviable it is unviable. Delays in making tax payments, though
always welcome, will have only minimal effect in the long term as they do
nothing to affect the underlying profitability of businesses (neither for that
matter does lending money to prop up a business losing cash by the bucketful).
However, widespread and radical moves – and they need to be
implemented urgently – to facilitate businesses to shift fixed costs to
variable costs are probably one of the very few things that can actually be
done other than letting the recession run its course.
That this problem, and its remedy, have been entirely
missed by the Establishment, just goes to show how little understanding economists,
governments, and their armies of dead-wood advisers really have about