Jobs, moods and rules

Both the USA and the EU need to create more private sector jobs. In both the American and European continents unemployment is too high. Tax revenues are depressed and social expenditures large as a result.

Both the EU and the US authorities are taking actions which make private sector job creation more difficult and dearer. In the USA there are many corporate worries about President Obama’s Health care plans. Most agree on at least one thing – companies on average will have to pay more for the health insurance for their staff. Many company pension funds are languishing with deficits. The poor performance of US shares over the last decade has hit them, as many of these plans are substantially invested in domestic equity. Companies have to put more money into them. This background makes employers cautious about hiring more people.

In the EU the lawmakers are moving towards a big new raft of financial services regulation with new supervisory authorities. Taxes generally are rising in Europe, including taxes on employment and earnings. The USA too is busily putting in more Wall Street and banking regulation.

The creators of jobs and success in Shanghai, Singapore, Hong Kong, Mumbai and other dynamic centres must be rubbing their hands with glee as they see all these moves. Of course the west needs to learn from the big regulatory and management mistakes made during the Credit Crunch. That does not mean we need new regulators and more box ticking. It means we need Central bankers and lead banking regulators with better judgement. The old regulators and central bankers did not lack numbers of staff or powers. They simply got the judgement wrong, allowing too easy credit up to 2007 and then tightening too much too quickly to correct it.

The problem today is very different from the problems in 2006-7. Then the issue was excessive lending and credit. Today it is slow recovery held back by banks that cannot lend enough under the new rules and by companies that are happy to hoard the cash they generate for fear of more problems like 2008-9. The more western governemnts make it dearer and more complex to do business, the more the brake will drag on the recovery.

In the USA employees naturally value their healthcare plans, given the US health system. They also value their jobs, as the US incentives to work are more sharply defined than in some European countries. The President was doubtless well intentioned in his bid to raise healthcare insurance standards, but it raises the costs of US labour relative to other competitors. It will be good for productivty, and bad for the rate of job growth. The general fashion to much tighter bank regulation in the west will mean a slow recovery.

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14 Comments

  1. Sally C.
    Posted September 3, 2010 at 8:54 am | Permalink

    Given how much risk is involved in setting up a business, and given that you are expected to pay tax on any profits from the word go, it is amazing that we have any new businesses at all. Given the huge salaries still being paid to bankers, why would any young person want to do anything other than join a bank?

  2. Kevin Peat
    Posted September 3, 2010 at 9:02 am | Permalink

    The standard of living in the west is too high to compete directly with the production lines of Shanghai. Our educational standards aren't up to the test either – not judging by the Chinese medical doctor who visits my blog, fluent in four languages and able to speak/write English better than I can… and most certainly better than 90% of our kids can.

  3. English Pensioner
    Posted September 3, 2010 at 9:40 am | Permalink

    Whether it is better regulation in Europe or Health Care in the USA, both of which are probably highly desirable, it is utterly ludicrous to pile these extra costs on businesses in the midst of a recession – indeed, the governments should be looking at ways to help businesses by easing rules and regulations (if only on a temporary basis) in order to get things moving. Once things are moving, then is the time to consider what changes are needed. Telling the banks they must have greater reserves, not take risks as previously, and then telling them they must lend more, are mutually contradictory aims typical of the muddled thinking of many of our politicians.
    Incidentally, a few years ago an American business man said to me that he was very much in favour of the EU and the Euro. When asked why, his response was that they had made his business competitive in areas such as South America where he had never done business before. No doubt Obama will correct this situation!

  4. waramess
    Posted September 3, 2010 at 9:41 am | Permalink

    You may be right. It might all be the fault of the banks and their unwillingness to lend. I, on the other hand, think it is all the fault of the government who seem unwilling to let others spend.

    The more government spend the less their is available for the rest of us. The pumping of even more counterfeit money into the eystem is not the answer and will only lead to more inflation.

    The Coalition say they will cut Government spending and, if they are so sure they should start cutting taxes bcause this is the only way to create more wealth creating jobs.

    No good saying we did it differently 20 years ago, Government were not spending in excess of 50 percent of our income then.

    Personally I don't believe this bunch of chancers have a ghosts chance of pulling off something that Maggie failed to do and if that turns out to be the case maybe the electorate will finally move to install a committed right wing government to do the job

  5. Iain Gill
    Posted September 3, 2010 at 9:56 am | Permalink

    dont just measure where the money is

    measure where the intellectual property is

    IP and an educated workforce are the only things that can sustain a first world nation

    currently our best IP is leaking like a sieve to places like India, both legally and illegally, we need to get a whole lot better at protecting it, for this is our childrens bread and butter

    and the schools served up on the worst public housing estate wastelands are sub 3rd world

    and then of course we have immigration, we are far too tolerant, and naive, and we are being taken advantage of big time

    i look at some of the IP which we invented which has gone abroad in the last few years and its no surprise that we cannot compete in those markets any more, how are we going to compete in the world if we let this continue?

  6. Mark
    Posted September 3, 2010 at 12:56 pm | Permalink

    The biggest improvement the US could make in health care provision and cost is probably tort law reform.

    The banking problems of today are that we haven't addressed the banking problems of yesterday. The really big ticket bank lending in the UK is all about property loans. Large businesses don't borrow from banks – they get their funds directly from bond and equity issues, or supplier credit (suppliers can prefer to offer this in return for a higher price to getting funds that earn no interest at a bank) – bypassing the banks. Indeed, resource businesses rather than banks are now providing the store of wealth function of money to the wealthy who invest in oil and gold.

    The banks have failed to apply the reserves they are hoarding to solving the problems they have with their loan books. They should be compelled to do so, rather than allowing accounting fiction from rigged interest rate markets and access to highly subsidised borrowing from the BoE to justify further bonus payments.

    I agree that banking oversight doesn't really require a morass of new rules, and would probably benefit from many fewer, replaced by strong principles. Transparency is probably one of the only things we need: no hidden SIVs off balance sheet, a clear vision of positions taken, so that counterparties can evaluate the risk of doing business with a bank.

    I agree also that regulation now mostly acts to harm our competitiveness in international markets. But don't let's pretend that the banks have solved the problems that they have in fact left quite untouched. The latest BoE figures show that the stock of mortgage loans actually increased by £1.5bn in July to over £1,239bn – effectively writing back, not writing down mortgages after £1.2bn of net lending during the month. Trying to pretend it can hide in the broom cupboard really isn't sense.

  7. Michael Read
    Posted September 3, 2010 at 4:30 pm | Permalink

    A bit off the plot but never mind.

    HSBC announces today in the FT that it will move its HQ offshore if the UK goes ahead with plans to enforce the split of utility and casino banking. Other banks have made similar statements albeit sotto voce.

    The US Congress is poised to insist on the split … but perhaps that's not a done deal.

    My question: What's your position?

    Travel in hope that the US will do the right thing and shelter in that decision.

    Or make a mighty step for mankind and see British banking heading down the Channel tunnel.

    • StevenL
      Posted September 4, 2010 at 1:27 pm | Permalink

      The probably mean they will shift a few plaques on doors, change a few company registration details and shuffle their accounts around.

      The UK would lose some corporation tax. So instead of them paying the UK Treasury a few billion every year they would be paying it to the Hong Kong authority and making various demands of them instead no doubt.

      Since HSBC are not relatant on HMT and Mr King so much as the others they can do this. Who runs Britain though? HSBC?

  8. StevenL
    Posted September 3, 2010 at 6:06 pm | Permalink

    My answer would be to encourage the cash-rich older generation to get into venture capital. Loads of them won't touch the stock market, but do donate to good causes and do play the lottery.

    Local venture capital funds, helped out by retired bankers/accountants and funded by middle England for as little as £50 a month on standing order could give young entrepreneurs the funding they need. It's a small risky investment, that helps the local area, helps young people, helps the UK and carries the chance of owning a piece of the next Microsoft from day one.

  9. davidncl
    Posted September 3, 2010 at 7:48 pm | Permalink

    "Both the USA and the EU need to create more private sector jobs"

    No. We need to shut down the state.

  10. Lindsay McDougall
    Posted September 4, 2010 at 9:12 am | Permalink

    It can be summarised easily. Government is bad for you. A lot of government is very bad for you.

  11. THE ESSEX GIRLS
    Posted September 4, 2010 at 11:52 am | Permalink

    Is it just our impression over 40 years or so or is the economy and employment only expanding when house building and buying is whistling along?
    Is the ‘bust’ actually a symptom of governments lurching from reasonable to high interest rates in a short time span? Not necessarily very low rates but moderate PREDICTABLE rates which enable would-be buyers to plan ahead.
    Could a central bank not always guarantee a 12-month forward rate?

    Also we read that £184m had been written off by the banks through mortgage defaults. The sums written off by the UK banks on mortgage defaults is low in their overall mal-administration but they now victimise borrowers by levying high mortgage rates and big deposits and fees.
    The 10% deposit if you had a full-time job got we baby boomers on the housing ladder and this has fed through to comfortable retirement. And we could use a mortgage loan only to buy a property, not to reduce credit card debt etc!
    If one bank made this a feature of their loan policy they would write plenty of business, forge a very favourable image and help force all lenders to get the all-important housing market, and the economy, moving.
    Too simplistic?

  12. FaustiesBlog
    Posted September 4, 2010 at 6:38 pm | Permalink

    The regulators didn't just get the judgment wrong. There was an unhealthy chumminess between the regulators and the regulated – those old revolving doors again – so much so, that their actions and inaction where it mattered were (questionable -ed).

    As for creating private sector jobs, why doesn't the coalition make self-employment more attractive by simplifying procedures, junking red tape and providing a tax incentive? Should people be unable to find jobs, they'll be on the dole so surely, providing a tax incentive will still bring in tax revenues where there might've been none.

    Many of those who will be sacked in the coming years will need to find a way to keep themselves afloat. What better way than for them to use their overly-generous severance packages to set themselves up in business?

    The beauty of self-employment is the speed with which an individual can respond to demand and changing circumstances – agility.

    And yet, I've not heard a peep from the coalition about boosting the self-employed sector.

    • FaustiesBlog
      Posted September 6, 2010 at 10:36 am | Permalink

      Why censor the word "criminal", JR?

      And why censor the URL of this video?:

      Is it a little too close to the mark?

      Reply: I do not leave in refs to videos I have been unable to view myself, and there is often not enough time for me to view them. Summarise the point they make please for a quick posting here.
      I do not think you should accuse people of being criminals unless they have been found guilty of an offence, or you are submitting evidence to prosecuting authorities.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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