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Friday, November 21, 2008

GETTING OUT OF THE CRUNCH

The current government solution to the Crash is, in my opinion, making it worse. It is trying to solve a structural problem essentially by printing money & kiting cheques. The structural problem is that government regulation & taxes are actively making the economy less competitive. If somebody has the money to invest why should they choose to invest it here rather than in India, China or Singapore. Actually there are some pretty good reasons mainly that we have better science, better infrastructure & a better history of financial probity but then we have a government that forces the team that produced Dolly the sheep to relocate to Singapore.

Government has been about 43% of the economy. £100 billion put into the economy by government would be about 7% of GNP. Add in a 2% recession & the non-state section drops from 57% to 48%. Not all government action is non-productive but quite a bit (eg the Health & Safety Executive) has a negative cost in that they drive up the prices of the productive bit so on balance we can consider it non-productive. How much the productive economy is restrained is difficult to measure in total but I have previously estimated that the H&S powers take up the equivalent of 4 million jobs, that housebuilding costs 4 times what it should & that electricity prices are up to 4 times what they could be.

Clearly therefore, while the current government action will drastically squeeze the productive economy. There is enormous potential to release it.

Here are 16 proposals:

1 - Cut the size of government spending - I would go for a no new hires rule & price freeze in the government, probably excluding new doctors & a few other proven front line requirements - this should be about a 5% real reduction year on year. Also completely prune particular departments described later. 5% of the budget is £30 billion so including both actions over a couple of years that is probably about £100 billion. Mark Wadsworth comes up with a similar figure from different directions. This doesn't itself increase the economy, indeed cutting the non-productive £100 billion would cut the economy by £100 billion (ie 7%) but gives us money which can be used with a real multiplier effect & long term growth benefits.

2 - Cut corporation tax to Irish levels - cost about £30 billion & this is the main bit of what got Ireland's growth up from 2% to 7%.

3 - Lets go overboard & cut business rates too - about £20 billion at half the effect.

4 - Gut the Health & Safety Exec - if it saves the work of 4 million workers that is 14% of the economy.

5 - Allow the free market to build as many nuclear plants as the market needs, starting tomorrow. There are arguments for & against the government paying for & owning it but lets keep it simple & at zero cost.

6 - Improve transport - better roads, particularly motorway junctions, allowing airports to expand & the road tunnels project. Cost a few billion. Improving transport infrastructure is one of the things where government expenditure actually works.

7 - Adult job training. Hire retiring plumbers, electricians etc etc to do evening classes in some of the schools empty in the evenings. Adult, particularly male, technical education is the part of education which shows real worthwhile payoff in productivity.

8 - Automate the rail system & introduce lightweight vehicles based on road vehicle technology. My guess is this would be about £10 billion annually but once it is done rail costs go way down & capacity way up.

9 - Quit the EU. The Bruges Group have said the EU costs us £55 billion in direct costs. The EU's Enterprise Commissioner says the regulations alone cost £405 billion - ie £67 billion to us.

10 - Allow almost unrestricted housebuilding & encourage modular methods. This should let them cost about 1/4 the present price. Housebuilding is pretty much the biggest industry in any country & that would give us an enormous boost.

11 - End most of the sort of "environmental" regulations which have stopped Trump investing his £1 billion here for 3 years. This alone has cost the Exchequer £360 billion (£12% a year).

12 - This has already been done, albeit accidentally & need not be extended - Letting the £ drop is a major stimulus to the productive sector though exports. It worked in Major's time too - also accidentally.

13 - An X-Prize foundation & a free market regime on Ascension Island as a British Space base. So long as the Foundation is guaranteed an increasing amount of money at approx 5% above the rate of growth & able to offer prizes based on what the fund will be in future it can offer multiples of the current cost & in turn the gain to the economy will be multiples of that figure. Of course if nobody wins such prizes it has zero cost - that being the worst case scenario. I would suggest £1 billion a year as starting payment which would certainly put us at the top of the space & high technology trees attracting many times that level of investment & even more importantly, many of the world's best brains.

14 - I see that though we have saved £155 billion plus we have only spent about £70 billion. Put the rest into cutting taxes (28p off income tax or equivalent!). I would also support raising alcohol taxes since it discourages something socially damaging whereas most tax discourages productive stuff. It wouldn't take many years of excise duty rising faster than a Chinese style growth rate to pay for all the size of government here.

- These are a bit of a flyer not to be done till we know the economy is recovering:

15 - Build some floating islands, probably around Ascension island, probably about £1 billion each.

16 - Make a purchase guarantee for a factory to mass produce turnkey operation nuclear reactors in Britain, for use here & around the world. If it can be done with a new design & much smaller & hence less economic reactors it can be done for normal 1 gw ones. Invite the best designer, probably Ariva or Westinghouse (which used to be British owned but the government forced British nuclear to sell it off). We guarantee that if they can make a production line turning out one, turnkey operation reactor, a day we will purchase the first 2 years supply at cost if they can't sell them abroad. Assuming £350 million (70% of the current minimum price) a shot that puts us on line for a £255 billion liability & I am working on the assumption that, since there is currently a backlog they would actually sell. That is a bet but a reasonable one & if it works we would lead ourselves & the rest of the world to unequalled prosperity & end up with the sort of role in building the world's electrical power that the US has exercised for decades in world aircraft production.

- I think it would be conservative to say that most of the above individually, excluding #1, would increase growth by more than 2%. It would be optimistic to assume they would all work cumulatively but but even so that would be pretty good.

Alternately doing only a small amount of this would still make us one of the most successful economies in the world.

Comments:
I totally agree with point 7 - but goes far wider than the skilled tradesmen we have not got.

See -

http://www.computerweekly.com/blogs/when-IT-meets-politics/

For a call for "tax free training".

Some of your others are a wee bit grandiose. Why not a reform of public sector procurement to make it very much easier for the public sector, at all levels, to go for simple, rapid payback programmes.

Once again their is a suggestion on "When IT meets Politics"
 
Thanks - a useful link. I certainly don't exclude any particular change in procurement rules or anything else which would allow improvements of service while maintaining a budget freeze.

The proposal is intended to be grandiose - even if only a small part of it were applied or it were applied hesitantly we would still become extremely successful. I find that there is no advantage to going small scale in that this also gives the "do nothings" an excuse to say it isn't worth doing.
 
Really good thoughts on the subject. I'm impressed.
 
Over the last 14 months part 15 looks better since a space elevator based on the site I mentioned is feasible & on part 16 Hyperion are now eager to build 3 nuclear power plant factories worldwide - 1 in the UK. Neither of these have attracted any public interest & no political party except UKIP looks likely to do anything serious about any of the first 14.
 
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