Sunday, October 16, 2011

Adding Value

The economic problem about jobs is a bit like a game of football. A football game needs a certain number of referees and linesmen to keep the game going. However the point of the game lies in the skills of the players, not of the officials. Small children do not generally have pictures of the officials on their walls, even when a poor decision by an official may have substantial impact on the result of a match. 

The same issue arises with state sector jobs.

The fact is that poor regulation can kill an economy just as it would kill a football match.

To my disgust, my own party was proud to announce the hiring of 2000 new tax inspectors at the Lib Dem party conference. The fact that Britain now has more tax inspectors than soldiers is a matter of shame. The fact that we have the largest and most unworkable tax code in the developed world is a national scandal.

Imagine if FIFA, or some other criminal organisation, decided that there should now be 25 definitions of the offside rule and insisted that there be a single official for each interpretation, and that official must be paid more than any single player and you can begin to see the crisis that we have brought upon ourselves. There would be more officials than players, and the whole point of the game would be lost.

The Capitalist world is in grave danger of doing something similar. By failing to think about what kind of jobs are being created, political leaders have begun to believe that it doesn't matter. "A job is a job".  Yet that isn't true. A tax inspector is ultimately a net economic cost to society, an entrepreneur is a net economic profit. One is an official, the other is a player, whose taxes pay for the officials. 

Over complicated regulation is destroying the whole point of capitalism, which is that entrepreneurship can make money by adding value in services or products that can pay for benefits across society.

Watching the "Occupy" protests, I wearily understand the sense of injustice that these people feel. However it is not a question of more regulation of business, it is a question of sane regulation: 

We say that as a general rule, the rich should pay more tax than the poor, yet we then over regulate so much that the precise opposite happens, and many of the richest end up paying no tax at all. 

We say that we want to promote investment so that anyone who has the energy and the courage can become an entrepreneur. We then make it so fiendishly complicated to set up on your own that early-stage entrepreneurs spend more time complying with regulation than trying to build a business. 

We say we want a more open society, and then put so many obstacles in peoples way (including public ridicule and contempt) that only the most hardened party political cynics are likely to make it into our Parliamentary systems.

Meanwhile the political-regulatory complex reinforces itself: The politicians boast of their disasters, and apart from the deification of Steve Jobs, entrepreneurs as a group remain reviled. 

I can only assume that our political leaders were a lot of very strange kids who had Pierluigi Collina on their wall, instead of David Beckham.

1 comment:

Newmania said...

Yes I agree with all of that and I have been saying much the same thing for what seems like years. Every time I hear the cry for more jobs (to be provided by more borrowing and more state sinecures) , I feel as if I am in an asylum.
Imagine a Company that imperilled its future by borrowing more money so as to create more HR jobs or increase staffing levels, for no good reason.
I appreciate that a complex economy needs liquidity and I understand that employment can be worth protecting from short term recession, just as a Company might well choose to retain expertise or capacity, but actual deliberate waste ?
I am not sure when we slithered back into imagining that full employment as an objective was a good idea anyway but I digress

The problem is that when you throw money around there will soon be "vital" roles to spend it , you have then created an even more painful readjustment for the future both political and in terms of stalling demand.

The idea we can borrow our way out of this without any change to the supply side is fantasy and the supply side cannot adjust without ..unemployment