Originally published in Entrepreneur Country, 12 December 2011
I have been struggling these past few days as to whether I should write this. After all, what do I know about politics and what could I, above others, express about the events of the past week that has inference on my life and business? I decided that I, as everyone else, have a right to express my opinion, to be concerned at the impact of decisions made by our government and their implications on the UK, on our future. So I write. My concerns cut deep and wide – the consequences of Cameron’s actions on Friday seeded thoughts of the UK’s competitiveness, of what can be done to resolve the unfortunate situation we are in and my conclusion that the long-term solution must rely on fostering a better environment for entrepreneurship.
My initial reaction on Friday morning was of excitement – I respect leadership and relish change, and, for the first time in a long time, I felt that a British Prime Minister had not crumbled, had not caved in to pressure and had stood his ground for what he believed was right. I like the fact he stood up to “Merkozy” and, from what I was reading of why, I believed he was right. We, the UK, must come to terms and accept that the only thing the rest of the world wants from us, aside from Arms, are our Financial Services. That is where our comparative advantage lies. We account for over 50% of Financial Services activity in Europe. In 2010, the £36 Billion surplus in Financial Services, helped to counter the £98 Billion deficit in Trade and Goods. It directly accounts for 10% of the UK’s GDP, with the likely indirect impact closer to 25-30%. What right do the French and Germans have to erode our core industry? The French have Agriculture, the Germans have Engineering, we rely on financial services to keep our economy ticking, with the benefits of the wealth created trickling down to all corners of society. I don’t condone the current state or management of our banking sector in any way, in fact I am working hard to change it, but the unparalleled skill set we have in finance is undeniable.
However, over the course of the weekend my thinking has changed a little. It appears that Cameron may have made a bit of a faux pas. It seems as though he would have been able to veto any resolutions impacting the city even if he did sign the agreement. It appears he pushed a little too hard and in the wrong way. Continuing to be part of the EU, we now don’t really have a say on future rules that will impact this country. He did not ask for an opt-out of certain clauses, but actually asked for unanimity voting on certain issues related to the city that would currently be resolved by super majority vote. There was no way it would have been supported, particularly and further given the way he apparently presented the demand; a late distribution of a paper documenting the proposal, without any prior attempt to build support through face to face lobbying/discussion with individual stakeholders.
I have serious concerns about the proposal signed on Friday morning – it sets a precedent for a United States of Europe, controlled by the Germans (or maybe the French? – nah) in the aftermath of a euro breakup and, potentially, sovereign defaults. The agreement answered questions that the French and the Germans wanted answering, not the questions that needed to be answered.
I doubt there is much that can be done to stop the redefinition of Europe and the Euro, save the European Bank pumping billions of Euro’s into the system to help cover the interest payments that need to be paid. See, just like for a business, cashflow is king for an economy too. Just like in a business, an immediate impact to cashflow can only be made by slashing costs (public spending) while looking for solutions in the mid to long term to increase revenue/growth through sound economic investment and stimulus.
The way I look at it is that European countries have gotten fat and lazy; with the continued lowering of inter-country trade barriers, we are losing more and more of our advantage against the rest of the world, but still like to parade around like Emperors. The throne is crumbling. In respect of the UK; I think we, as citizens, over estimate our position: The international demand for UK government debt (gilts) relative to euro debt is alarmingly low and acts as a barometer for foreign sentiment; nobody wants to invest in the UK any more. Across Europe, we have spent way beyond our means and our prospects. We have supported our economy with debt rather than look to grow revenues through innovation and diversification.
The key, for me, to the UK’s future prosperity, is in the foundations that Government can create for private business to build new areas of comparative advantage for the country. Entrepreneurs, by their nature, seek out and leverage excellence, nurturing the skills needed to address market opportunities, improving Total Factor Productivity for the nation. Entrepreneurship is fundamental to a country’s competitiveness and growth.
The improved EIS incentives announced in the Autumn Statement are a good start, the push for tech city is another. Indirectly, investment in infrastructure/transportation will also help. Arguably, we, the public need to lend a hand – the approach to risk in the UK hampers our potential; compare to the US, where more are willing to take punts in venture capital, to invest in gambles, to take chances and work hard to help their investments succeed. We sometimes forget that the wealth of this country lies in the hands of a few – starting a business, making it robust, and ensuring success requires CAPITAL. It is only a few that have the capital readily available and those few need to be incentivised to help those less privileged to progress and shape ideas into the businesses that will be the future of this country.
We can’t rely on the government solving all problems – for all the good our democratic political system delivers, it is hampered by a lack of long term planning. Government can never be secure in a lengthy tenure nor of unilateral stakeholder (public) support, and thus focus on short-term policy to deliver impact to win the next general election. Comparing again to business, I remember reading the case study of Jack Welch at GE, who asked outright for his major shareholders to support him through thick and thin, to question and criticise his decisions constructively, but to give him the leeway to shape the company for the long-term. Bill Gates, Steve Jobs, Michael Dell…there are countless examples of how business leaders, having confidence in their tenure and support, were able to shape competitive advantage and grow world leading organisations. As for countries, look to Singapore and what it has achieved. More controversially, look at China.
I do not advocate (soft) dictatorship. I do advocate unity. Regardless of individual political sentiment, we have voted them in by majority to lead our country. I feel privileged to have at this time a bipartisan board running UK Plc; a more representative government with differing opinion – a model of good governance for any company. The Government does need to make tough decisions – they need to turnaround a country. They need a cushion of confidence to be able to do so. The Government must address critical immediate issues by being harsh; cutting spending, as discussed earlier, is the only way to have an immediate impact. But the UK Government must also be supported and encouraged to build the structure and institutions that will enable entrepreneurship to flourish and drive our economy forward, to ensure we don’t get into this mess again, to ensure we maintain dignity and a place of influence on the world stage. British entrepreneurs, by creating new sources of comparative advantage, will ensure the world continues to need us.