Thursday, April 16, 2020

Keir Starmer is Right - We Need to Know When Lockdown Ends

The Dangers of Lockdown and Why it Needs to End… Soon!

Keir Starmer may just be scoring political points but he is actually spot on in asking for a plan to end the

For the past few weeks, I have been bending folks ears (those within earshot at least) about the very
real threat that lockdown presents to the economy and the danger that a prolonged lockdown presents to the country in the long term. I hear a lot about science deciding when lockdown will be eased but where is the economics, and where is the ear to the business community below the big players?

It is odd to find myself in agreement with Professor Anton Muscatelli University of Glasgow. He and I
crossed swords at a debate hosted by Glasgow Chamber of Commerce on the merits and opportunities,
in my view, of BREXIT. The Professor disagreed and we debated it for an hour or two before an
audience who I hope were entertained.

But on this occasion, the Professor and I are in violent agreement predicting catastrophic declines in the

Scottish economy as a result of the actions taken in response to Covid-19. The OBR agree for the
wider UK economy, and it is all self inflicted.

The Government has certainly set out some extensive measures aimed at mitigating the short term
impact of the lockdown. But there are many ongoing debates about their suitability for smaller firms. 

The fact that there is the ongoing adjustment to accommodate businesses that have so far not been
thought of in the provisions is good. But it speaks to the knee jerk nature of the response and as to how
poorly understood the richer economic reality is in Government. It is a point reinforced by the lack of
uptake. The provisions are not appropriate for many and the mechanisms of delivering them are

I also hear from my clients and contacts that small firms once ineligible for bank finance suddenly find
the bank offering them a product which they miraculously suddenly qualify for. Of course more
expensive than any Government-backed option but also immediately rendered ineligible for a great deal
of government support

But my real concern is for the smaller businesses, and particularly those in rural or more sparsely
populated areas.

Having spent many years dealing with these small firms in their efforts to raise finance I know that even
in the good times there is an aversion to debt. So why would they take it on now with such uncertainty?

I think that many will simply, quietly close up. Many are lifestyle businesses, small operations, many are
founder owned who have struggled with how they might sell or transfer it. My expectation is that many
will simply cut their losses.

Why does this matter so much? It matters because these form an essential part of the ecosystem that
supports other businesses. Most economies at a local level are highly integrated and a disruption of the
kind we now are wilfully inflicting on ourselves can be catastrophic. I remember vividly years ago when a
local steelworks closed the whole town were it was located closed with it. The shops shut, the people
moved out and a generation was wasted. Whole estates were boarded up. The council resorted to giving
houses away to try to attract folks in.

In Scotland, where I live I fear for the fragile fabric of the economic ecosystem in the more rural areas.
It is quite a fine material and a few good rips will ruin it for a generation. 

As a result, the ecosystem to sustain normal business will be gone. Tourism is often a significant
contributor to sustaining the communities and supplement other undertakings. Without the little cafes,
B&Bs and other parts that oil that sector it will grind to a halt. With it the other rural business subsidized
by it as well. Many of the operators of these small businesses use them to supplement otherwise
marginal occupations, so the failure of the supplementary income will have evermore profound effects,
it won’t be possible to “social distance” these businesses to prevent contagion. The end result will be
that the rural patches will recede into economic malaise for a long long time, young people will leave in
even greater numbers and the downward spiral will accelerate.

As someone said to me the other day “It’s going to be like the Clearances all over again.”

On the demand side, I also know how much our economy is underpinned by us taking on unsecured debt
to buy crap we generally don’t need. But it has kept the wheels on a consumerist model run on insanely
thin margins and dependant on volume to survive. The slightest adjustment is curtains for many in retail
work. We are already seeing many struggles and go to the wall. Of course like the Covid-19 victims many
of these businesses had “underlying health problems”, but this is just three weeks of lockdown.

If we stop taking that debt on because either, we can’t buy anything because the shops are shut, the
interest rate goes up (nowhere else it is able to go really) or, most likely, we are out of a job or seeing a
20% reduction on salary as we are furloughed, the whole roundabout fails. So the prospect of a V-shaped
bounce driven by conspicuous spending is pretty slim.

So, what is the solution? 

Well, quite simply, end the lockdown. A three week holiday might be just about survivable. Similarly,
explain the process of ending it. Trust people, give them the opportunity to plan. I don’t buy the idea that
by sharing such a message we loosen peoples behaviours re social distancing. Quite apart from the fact
that the evidence is far from conclusive that it is working, or that the cost is worth it, I just have much
greater faith in people’s wisdom generally.

If the lockdown continues, here are one or two suggestions, instead of propping up business, get them
into suspended animation, firepower to wake them up again. Target funds directly at the population not
through the business, temporary UBI. For the small companies get on to Companies House and HMRC
to track any micro-businesses winding up and mothball them. Bring in a debt jubilee to free folks up to
spend. Use the capacity of crowdfunding through targeted interventions to give us all the stake in the

The idea that we are knowingly creating an economic catastrophe worse than the Second World War
speaks of monumental miscalculation and horrendous overreaction. It can be stopped, and it should be
stopped, by quickly announcing the mechanism and timetable to end the lockdown.

Monday, April 13, 2020

What Will Really Change as a Result of Covid-19?

Let’s Hope it is a Reassessment of China.

There have been a great many pronouncements that the world “will never be the same again” after the
end of this period of derangement. “Everything will change” I hear.

I doubt it.

In 2008 I heard the same sage predictions as banking collapsed onto life support and the cashpoints
came within an ace of closing. For myself, I would have liked to see some close but that is a debate for
another day. 

The end of capitalism was widely predicted - radical change was afoot. 

But apart from the misery of austerity, the drudge and scourge of joblessness and poverty what did
really change? Structurally practically nothing. Behaviorally practically nothing. Longer-term some
political developments might have traced their routes to the shock of the banking crisis - but that is
how politics work. B

But as to the general manner in which we do business very very little change.

At the time I blamed a failure of vision, leadership and imagination from the Left - I still do. The
opportunity had finally arrived and they flunked it.

So what behaviourally and structurally will change this time round? 

Very little I expect. There are the eco acolytes who think it will, but it won’t. Quite apart from the fact that
their enduring electoral failures demonstrate that they are nowhere near as popular as they might think,
except amongst the chattering classes. More importantly, the period of lockdown, constrained travel
and soviet-style government intervention in the day to day minutia of your life will, I am certain, convince
most folks that the medieval vision of the more radical eco crusties is not something we aspire to. No,
we will return to foreign holidays and a bit of excessive drinking and conspicuous consumption to
celebrate emerging from the lockdown and before you know it we will be back where we were,
behaviourally that is.

But, if there is one change I hope just might come about then it is this one. I hope that more folks
question the role of China in the world.

I have never been under any illusion about the malign and corrosive role of China and have told those
who were prepared to listen. It is a ghastly repressive regime that habitually steals IP, manipulates
it currently and abuses human rights. It should NEVER have been admitted to the WTO. But it has been
the crack cocaine of manufacturing CEOs and University Chancellors for far too long. Eternally happy
to bend the knee, turn a blind eye and with weasel words, half-truths deny their addiction to the lure of
easy supply and assert it is a victimless crime.

It reminds me of the miners’ strike in the UK when arguments were made that we could “buy coal
cheaper from South America” Well sure if you are content it is mined by 14-year-olds with poor or no
safety equipment. Cheaper in monetary terms much more costly in every other way.

So my view hasn't changed. It is why I despise companies like Apple who have happily offshored
manufacture to China. Charge top dollar, rake in huge margins and do it off the back of lying down
with dogs. Steve Jobs always had fleas in my book. Their response in 2008 when they had $Billions
sitting in the bank was risible and I can’t help but smirk at how Apple loving “progressives” reaped
their own whirlwind in 2016.

But now we cannot deny the danger of chasing cheap manufacture to ever more remote countries with
dubious regimes.

For me, I hope this means that we can rejuvenate our manufacturing, return it home but to do so
through the widespread adoption of automation and AI. Of course, it will take investment but now we
know the cost of not doing it now. 

It was always going to be the future but we have tended to take the easier route, the cheaper route.
Now perhaps, finally we might be encouraged to make the change. Maybe this will be the important
intervention from Government to reshape things for the betterment of mankind that should have come

Ultimately competition will not be determined largely by price, as the opportunity to find significant
incremental advantage through mass manufacture will be so widely available that the market will
differentiate itself in other ways

Idealism? Maybe. Perhaps, as I say, nothing structural or behaviourally will change, just more drudgery,
austerity and recession. 

But, if there is one change, let it be that one.

Friday, January 31, 2020

Bye Bye EU

In the early months of 2016 I was attending a couple of crowdfunding events in Europe. One in Amsterdam I remember particularly well for the conversations outside of the sessions and at the networking events. Lots of people asked me, being one of the few Brits there, what I thought would happen on the BREXIT referendum.

There was general surprise and disbelief when I told them that I fully expected the UK would vote to leave. At first they mocked and played along with what they thought was a joke on my part. The idea that the UK would vote to leave was completely unbelievable to this predominately young crowd who, when engaged with the UK, tended to do so via London and the metropolitan views so commonly expressed there which would have simply echoed theirs.

As it dawned on them that I was serious they at first thought I was crazy. But as I spoke to them about why I thought it would be the case the reaction moved to one of apprehension and, in some cases, fear.

As it turned out my prediction was correct.

Later in the year I was in Europe again at another fintech event and was told in no uncertain terms by some German EU reps that inspite of the vote that it, BREXIT, would never happen. The UK would never leave they told me and that I simply did not understand how these things worked. It seems I did know my country better after all.

I make this point today for two reasons.

Firstly there is an important lesson for anyone involved in the crowd economy, beware of confirmation bias and be sure you are listening widely when you try to engage with the crowd.

The second reason for mentioning it is because today we do begin that journey away from the strictures of the EU and for this I am wholly thankful as the regulatorily interventionist, bureaucratic and civic code model of the EU stands four square against the opportunity and promise of crowd economics.

For me the two points are in a way related. As it happens I not only managed to call that referendum, but the US presidential, two general elections and a Scottish independence vote pretty much spot on, much against the prevailing wisdom of pollsters and predictors everywhere. I am also not a fan of the EU.

How so?

As someone with numerous degrees, having lived and worked over seas for many years, being married to an immigrant I am by most estimations a “citizen of nowhere” by Goodharts rules and should in all probability share the prevailing pro EU views of such demographics and been wholly undone by finding pout that my iphone chatter was so out of step with the electorate.

But, I also failed my 11+, have trade tickets as a welder and bricklayer and have done more than my share of terrible soul destroying jobs to understand that real pressure is working back shifts in a foundry as casual labour worrying about making the rent. It is not sitting in a swanky office working hard as a well paid management consultant deciding who might get fired at a clients business.

As a result I have always managed to retain connections from people through out my life. I have good ties to both ends of societies spectrum White collar, gilded collar and blue collar and so I seem to have a reasonable feel for a broader swell of feeling than perhaps those that have a a lens dominated by social media and a group of like minded followees at that.

No, I have seen what has happened to my once proud little home town and not in the slightest surprised they said “enough” to politicians who seemed to despise them and hid behind the excuse of Brussels to not act in their interests.

This is, I think, an important lesson for anyone in the crowd economy. Social media is not the real world and it is, in large part, a low touch relationship. Use it as a barometer at your peril.

But my antipathy to the EU (not Europe I hasten to add – two very different things) runs deeper than simply the decline of my home town. No I think their instincts are all wrong for the crowd economy so freeing ourselves from that approach is a cause for celebration in my opinion.
When I was invited to debate the merits, or otherwise, of Brexit with an eminent Economics Professor and vice principle of Glasgow University last year, you will not be entirely surprised that we didn't see much eye to eye. Apart, that is, from the fact that we both agreed that to that point the negotiations had been very poorly handled.

The Professor was unwilling to engage with the dreadfully inaccurate predictions made by other eminent economic advisors to the Bank of England or the then Chancellor ( apparently he hadn't read them). Similarly he had no answer to why it was that Europe was not leading in the fintech arena or indeed how it had singularly failed to great a Microsoft, Facebook or Google. One wag suggested in the audience that a large American market to build from might have something to do with this, to which my counter was “so much for the much trumpeted single market eh?”

No the answer is, in large part, interventionist regulation. English common law has allowed the regulated aspects of crowd finance to flourish here in a way it hast under a civil law model. Similarly it is the EU's instinctive Luddite fear of allowing technologies liberating aspects to flourish which gives us bureaucratic failures like GDPR and “the right to be forgotten” and the disastrous copyright directives which we will thankfully be ignoring here in the UK.

No I wont lament our departure from the EU and I shall continue to use it as a real example of both the risk of narrow consultations, and the dangers of poor ill considered regulation in a world where innovation runs ahead of old protectionist regulatory models designed to favour incumbents and not to embrace the opportunities we could, and should, be looking forward to.