Since I wrote my last article for Real Business I’ve been digging into the problems we face as a nation. This has involved facing up to the magnitude of the trouble we are in; how bad it’s become, and how much worse it could get.
It’s led to some surprising conclusions: Firstly, it’s way worse than I’d thought – and I already knew it was bad. Secondly, the answer in now in our hands – but we haven’t realised it yet.
This Tuesday it finally, and decisively, emerged that “austerity” isn’t working. In fact, it’s having the reverse effect and risks killing the patient, according to its major advocate until now, the IMF. It turns out that, when measured, for every one per cent cut economic growth is reduced by 1.7 per cent (not 0.5 per cent as previously thought). The implications of this have yet to sink in, but anyone who’s seen the reports of the most recent unrest in Greece can be in little doubt that those who fear for it’s democracy have ample grounds for doing so, based on clear historical presidents. The medicine has been harming, not enhancing, the patient’s ability to recover.
Since this has been the chief (if not the only) instrument available to tackle the wider crisis, any comfortable illusions that the IMF and governments actually know what they’re doing must now be put firmly aside.
David Cameron’s suggestion that the UK economy is “healing slowly” was dismissed by the accompanying downgraded figures, which show the opposite; we remain in decline, not just barely above level as was thought. No wonder he’s now telling the Tory Party conference, and the nation, that it’s “sink or swim time”. But it’s hardly a good sign when the monetary authorities are clearly at sea and yet feeling obliged to press their view onto national governments and national politics.
In short, the plot has been well and truly lost. Economies are actually about businesses and production – not the infrastructure of banks and finance. How did we end up where they’re thought of as a mere adjunct to something bigger? That the real money is to me made out of juggling money to produce more money out of thin air?
Paul Mason of BBC’s Newsnight said that this is a turning point. He’s probably right. The fog is dissolving and it’s now clear that these financial Emperors have no clothes at all. Just a clever juggling act that deftly creates value in the accounts they control – seemingly from nowhere. Real value is created by real businesses, from real people doing real work. From real innovation. Now, that is “redistribution of wealth” – on an epic scale.
Meanwhile, business is being stifled for lack of cash, and banks apparently still have better things to do with their funds, despite every effort from the government, who have finally cottoned on to the fact that failing to fund businesses and entrepreneurs is the biggest risk of all. But taking 18 months to build a Bank for Business is too long – we don’t have 18 months to spare – and I doubt that it will work.
We need action now, before we are dragged onto the slippery slope down which Greece is now sliding. The government and all the political parties need a wake-up call. But even so, the question remains as to whether the banks will play ball, even at this stage. History says not. Cameron told the party conference he will, “get behind the doers, the risk-takers,” but how can he?
He might not – but we, the real wealth creators, can. The very government that spent the last year and more trying to bring cash into the hands of businesses so that they might save the economy, says that we are its only hope.
As Matthew Rock said, the ‘real lesson of the past five years’ financial crisis is that our political leaders and central bankers are impotent in the face of rampant new digital and global forces.” He’s right too in pointing, as both Vince Cable and the PM have repeatedly done, to the SME sector and entrepreneurs as the true source of any real hope.