What future for business? Risk taking and innovation after the recession

8 07 2009

AR0UCTVCA3838BCCAIFF8UXCA19JEK3CAQ8BA1JCA74964FCA1VCLJNCA6PF3CECAA4KB0ZCAIM1R9SCAXA15DGCARAN6ALCADTF3IBCAR9Q12XCAKU4BXVCAYL6X9PCAR7T817CAP861NNCA1HBK90CAPC1B8MThis is an edited version of my speech at this last night.

Whenever there is a panic in society, for example around swine flu, I usually find myself on the side of those saying ‘calm down, its not as bad as you think’. I generally take the view that as a society we are too risk averse and liable to panic. However, as far as the recession has been concerned the opposite is the case.  The recession now appears to have been a bad dream about greedy bankers and corrupt politicians from which we are awaking. The concensus appears to be to forget about it as quickly as possible and get back to business as usual. I feel like Cassandra, condemned to tell the truth but to be disbelieved, because there is no ‘business as usual’ and here are three reasons why.

The first is that the damage done by the recession is deep and likely to be prolonged. I say the damage done by the recession rather than the recession itself because technically the recession, defined as consecutive quarters of nagative growth, may be over or almost over, but the damage will linger on:

  1. Unemployment is continuing to rise
  2. Toxic debt has not been removed from the system
  3.  Banks are not lending
  4. The securitization business, provider of investment finance, has disappeared
  5. World trade has collapsed
  6. Global capital flows have slowed dramatically

Secondly, for the UK there is no business as usual for three main reasons. For the past ten years financial services have been the main driver or the economy. there is very little chance that this will return. Also the crisis in public sector finance, affected badly by the reduction of taxation from the finacial services sector and the costs of propping up the banks, will mean big challenges for the public sector in terms of employment and services. Lastly our political class has run out of ideas and lost a large amount of authority. This will make any hard choices difficult for it to take.

Thirdly, real change in the economy will require inevitably some risk taking and more innovation. Yet even before the recession the UK had the lowest Research and Development and Venture Capital investment in the developed world. The recession, according to the Future Foundation, has made business even more risk averse.

We are culturally a safety first society. We view new developments in science and technology with suspicion and hostility. We are over protective to an absurd degree of our children and ourselves. Is it possible to imagine that this kind of attitude will foster and encourage a dynamic econopmy?

Take the banking crisis. We have capitalism which cannot stand on its own two feet and a state which cannot act decisively. The banks have been protected from their own recklessness by a state too feeble to either force them to face the market or to take complete control. Instead we have a half way house which allows the banks to stop playing their role as providers of credit. Some people see the banking crisis as an example of taking too much risk. But there is a big difference between taking a calculated risk and sheer recklessness and stupidity.  The creation of toxic debt began as an attempt to spread and minimise risk. It became reckless once the people buying the debt stopped checking on what they were buying. This was just plain stupid.

There is not one part of our society , business, politics, culture, which has not become more risk averse. The way to challenge it in the first instance is through politics, something anybody can play a role in. We have to renew our democracy as the prelude and the process of renewing our economy and our society.

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13 07 2009
No such thing as ‘business as usual’ after the recession « UK After The Recession

[…] usual’ after the recession 13 07 2009 In a post last week I argued that the talk of green shoots in the economy was nonsense. The hopes of a return to ‘business as usual’ are slim for […]

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