Thursday 11 July 2013

Time to unbalance the economy

It is a relief sometimes to find the government has done something that is, not just unexpected, but overwhelmingly and unexpectedly right.

There I was staggered that Vince Cable is prepared to countenance plans to privatise the Royal Mail, a step which not even its most enthusiastic proponents would claim will improve the service - and will therefore introduce a whole range of externalities and costs for other people - with not a shred of mutualism to be seen.

And suddenly, the government wins a high court action against the big fishing companies, which had tried to prevent them re-allocating fishing quotas to small fishing boats.

This is such an imaginative move that I have been wondering if it could be extended to cover other parts of the economy.

It is true that progress 're-balancing the economy' has been extremely small.  It is difficult to shift economic power from the banks and finance companies, because the rewards to the Treasury of letting them carry on hollowing out real economy are so high.  So we still, after three years of the coalition, have an economy miserably dependent on a non-existent local lending infrastructure, and we still have 70 per cent of bank lending desperately attempting to create a new property bubble.

So why don't we give up the effort of re-balancing and set out a new policy of unbalancing the economy - a deliberate effort to shift power from the big to the small.

The rewards are difficult to estimate but they should be huge: small companies employ more people, expand faster, pay more tax relative to their size, provide challenging innovations and support their local neighbourhood in a way that the big corporate giants fail to.

Is there really any doubt that having a Big Ten supermarkets rather than a Big Four would improve service, employment and competition.  Having a Big Thirty banks rather than the handful of useless behemoths that we do have would expand the local economy far more effectively, rather than corroding it.

Shifting subsidies for farmers from the big to the small would improve yields, diversity and competition and help the balance of payments.  It would also improve employment.

Because only radical action like that would be able to shift the astonishing privileges the big companies have at the expense of the smaller.  Tesco is able to demand that suppliers wait three months for payment, providing them with an interest-free loan equal to two months of stock, when competitors have to pay in one month. Thames Water took in more in government subsidies than it paid out in tax.

What's the downside?  We could potentially lose some economies of scale, but since most economies of scale are matched by diseconomies of scale which very rapidly overtake them, that may be no great loss.

It would require guts and, more than guts, lawyers - and it would need to be justified by a manifesto promise.    But if anyone lets me back on the policy committee of the Lib Dems - which is far from certain - that is what I'll be trying to insert into their manifesto: something that is, at long last, pro-business and overwhemingly pro-enterprise and innovation.

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