UK can’t count on others messing up
THERE are two ways a country can do well. The first is to introduce domestic policies that boost work, investment and innovation, and trigger an entrepreneurial revolution and job-creation. Regrettably, while the coalition has introduced a few pro-market policies – such as cutting corporation tax and tweaking some regulations – on balance it has made the UK a less competitive country, with taxes up and a tidal wave of regulation nodded through or actively encouraged.
Radical changes to the City were urgently required but many of the “reforms” agreed will be counter-productive, do nothing to prevent another crisis and damage a sector responsible for hundreds of thousands of jobs and tens of billions in tax revenues. The growing anti-business culture has also become debilitating. It is lucky for the UK, therefore, that there is another way a country can prosper – if its competitors pursue even worse policies. The bad news is that the only major economy that is planning to shoot itself in the foot is France, though of course others may join in.
Nicolas Sarkozy is planning to chase away what is left of his wholesale banking and fund management industry – and hit investors and firms – by introducing a Tobin tax on some financial transactions. The tax won’t be comprehensive but the historical precedent is grim: Sweden unilaterally introduced a Tobin tax in the 1980s and almost its entire bond and derivatives market moved to London, forcing it to ditch the tax.
But Sarko’s stupidity pales in comparison to the utter madness that lies in wait for France after the presidential elections, which increasingly look as if they will see the socialist candidate Francois Hollande triumph. He really, really hates finance, capitalism and business; he makes Ed Miliband sound like a moderate, pro-business candidate. Hollande is the sort of 1970-style leftist who hates dividends (because he thinks they reduce investment; presumably investors should provide their capital for free) and believes companies should never sack anybody (though resisting technological change and going bust is hardly good for jobs and productivity).
It won’t be as bad as when Francois Mitterrand was elected in 1981 and governed in coalition with the communists (the real deal in those days), nationalised banks and a large chunk of industry, almost bankrupted the country and was forced into a humiliating U-turn two years later. But it will still damage the economy and is bound to trigger another exodus of capital and talent from France, a trend that has been ongoing for decades and helps to explain why so many City professionals are French (and why Sarkozy, who hates the fact that France’s best and brightest have emigrated, loathes the City so much). This is both good and bad news for Britain: good because we will get people and capital; bad because it will reduce the pressure on the coalition to improve the UK’s business climate.
France’s elections are also likely to trigger a complete upheaval of EU politics: Hollande hates austerity, which will put him on a collision course with Germany, the IMF and reality. That could force a seismic shift in the composition of the EU, and even change the UK’s relationship with it.
The problem for Britain is that we can’t count on everybody else messing up; we need to get our own act together. On that front, unfortunately, it is hard to be optimistic.
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