The perils of driving a country through the rear-view mirror
Easy and popular never cured anything. We’re going to need more radical remedies to avoid scorched earth
Future problems are not going to be solved by remedies from the past. Confronted with an economic disease today, leaders (decision makers) always revert to medicines that worked before, and then they apply that medicine in increasingly dangerous doses. The circumstances that worked then are inevitably not the same as those in place now.
Take monetary policy, for instance. Since the 2008 financial crisis, central banks in varying degrees have been bailing out banks and using government money to make money cheaper for, in particular, those who borrowed to play in the market frenzy and fed it until it burst. The script was predictable but the regulators did it anyway.
Why? Because it was popular. In the right circles. Easy and popular have never cured anything. In lowering interest rates to zero, or even negative in real terms, central banks didn’t change behaviour, they forgave it.
The trouble with old remedies is that they are known and exploited. They’re simple antidotes and they always go too far – too much stimulus, too little austerity, whatever – and the pendulum swings too far to the other side, until the anti-antidote is then routinely applied.
If you want to change behaviour, if you want to address the cause, then something far more pressing and radical is required. It will turn out to be unpopular and hard, but it will work.
Debt has its purpose, for sure, but if you want people to limit their appetite for debt then it can’t be an upside-only game.
What if we scrapped the concept of limited liability, or at least refined it? The limited liability company, ABC Proprietary Limited, was the foundation laid to enable risk capital to venture into risky assets, safe in the knowledge that the downside was limited while the upside was not.
If you want to have a go at every new idea that comes across your desk then just fund each of them in separate companies and hope the odds work in your favour – those that succeed make 10-times money and you just lose your initial investment in the failures. Roulette is no different.
To make things even better, interest is tax-deductible in most jurisdictions. This is just another form of government support. Not a bad idea actually, but you have to let the market do its work. You have to let the failures fail.
Maybe we simply need more equity investment. As a country, that’s certainly the case.
But it’s not either-or, in any of these things, it’s about the right mix. Socialism, socialism on steroids in particular, is not the cure for capitalism. Ask Venezuela.
The world is far more complex and immediate now than in the (arguably) good old days, when you just did what you were told, and had to wait for the next change of CEO, or the next election, or leave, if you didn’t like what was going down. Whether a strategy or policy is working or not seems less important nowadays than whether it is popular.
In this new world, more skills and perspectives are required to reach informed decisions that result in appropriate, sustainable change. You won’t find these in one person, or one ruling party, or one doctrine. Benevolent dictators are hard to find and, as the saying goes: “If you want to make everyone happy, don’t be a leader – sell ice cream.”
There’s a difference between being popular and arriving at considered consensus, making decisions, and implementing them. In an increasingly borderless world there will be no sovereign state that isn’t a mixture of peoples. Mixtures of rich and poor, separate and mixed race, coexisting religions and different points of view are already the new order. The challenge isn’t to reach a uniform population, it’s to reach common cause for a disparate population.
We cannot simply arrive at the table with our old rules and conventional wisdom and prejudice and habits. The coalitions and collaborations necessary to underpin a tolerant and yet competitive economic society will require more than a clumsy mix of independent ideas.
It will require new ideas, informed by the mistakes of the past, but not simply a reformulation of past, blunt remedies.
In our case the ideas will have to be radical if we are to avoid the alternative predatory economic policy.
Radical is fine, if not necessary, but it will require everyone’s input and have to promise everyone a future if we are to avoid the scorched earth outcome of dominance or, worse still, mob rule.
Mark Barnes is CEO of the Post Office.