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University Library, Newnham, 2012
Reviewed by ANDRE BEAUMONT
David Hume wrote in 1752:
There was an invention of this kind, which was fallen upon some years ago by the banks of Edinburgh; and which, as it is one of the most ingenious ideas that has been executed in commerce, has also been thought advantageous to Scotland. It is there called a Bank-credit....
The advantages, resulting from this contrivance, are manifold. A man may find surety nearly to the amount of his substance, and his bank-credit is equivalent to ready money, a merchant does hereby in a manner coin his houses, his household furniture, the goods in his warehouse, the foreign debts due to him, his ships at sea; and can upon occasion, employ them in all payments, as if they were the current money of the country.
To 2010, for two and a half centuries, this capital based lending was available to individuals. Today you will not find it in the British high street other than at a pawnbroker. Thus far has the box-ticking, finance-only-comes-from-the-City, element of the business culture come. You cannot stake your house that your ship will come home. You must also prove that your house produces income. You cannot take the risk upon yourself that you will need or choose to sell it to repay both capital and interest.
Governments tell the banks they must lend more to smaller businesses and to households. The banks say there is no demand. Is this really so?
Capital creation by individuals has, and should have, an economic purpose in society. Banks need to be encouraged to lend against people's capital.
If they did so, again, it would relieve the state of many costs.
Given good advice, the capital of corporations suffers next to no detriment at the hands of the taxman but that of individuals is subject to depredations.
Capital should be like fuel in the tank. Whenever the needle is in the green segment taking the risk of driving on should largely lie with you.
Everyone should be allowed to acquire capital up to a reasonable sum, say $1 million each, before capital taxes really bite. The prid pro quo for lower capital taxation is that you will have to borrow against it, should need arise, to pay for your children's university fees or your residential care. The fuel in the tank may drop at these times, especially if interest is rolled up, but the fuel is there to be used not left static in the tank.
Where people have neither sufficient income nor capital, the state should help. It already does.
The alternative is a cycle that continually hits people of normal means. People are forced to sell homes to pay for residential care as banks will not lend against their unencumbered property without interest servicing.
Their hard won personal capital is then broken up so that the current expenditure of governments and bureaucrats' salaries can be paid for out of inheritance tax.
No socialist-leaning party is yet campaigning on the doorstep with the message: 'don't make a will as you know our redistribution of your money will go to good causes'.
A subsequent generation, not being able to afford university tuition fees, then has to borrow against future income alone, in truth a worse bet for commercial lenders than lending against capital alone.
As there is no family home left to live in for some, the struggle to raise deposits and mortgages goes on for further generations.
The world has changed much since the downturn commenced in 2007.
British socialism seems, however, to be advocating policies that economically target large classes of individuals rather than the problems.
In the 21st century, nearly all new inordinate fortunes are being created by the use of corporations to build or exploit monopolies.
With the exception of a few derived from crime or tyranny, next to none of the new fortunes are acquired in the names of individuals.
There has been a clear failure in recent years to be sufficiently vigilant in forestalling the creation and perpetuation of monopolies, the real source of modern inequality.
Once the monopolies have passed on the wealth to elite groups of individuals, targeting the latter is too late. Vast numbers of the middle class are caught up in the same fiscal nets.
A growth in the numbers passing through tertiary education, including the most highly rated universities, should have naturally helped reduce inequality during the New Labour years. That it rose may have a link to its relative toleration of near-monopolies and groups of companies behaving like monopolies.
Tertiary education - University Library, Newnham, Cambridge
Not that its higher education strategy could be said to have been well-conceived. Why, for ideological reasons, force through compulsory tuition fees at a point in the economic cycle when they were not necessary? Next to no other party in Europe would have dared to do so.
It is not, either, that we do not need a mix of large, medium and small sized companies. It is that the business culture has created a feudal system amongst them, with the smaller always having to pay fealty upwards. Bureaucratic box-ticking also largely takes the large at their word but hammers down on the small for not being large.
In the year before the Berlin Wall came down, I was at a meeting advancing British construction interests in Paris.
With British colleagues in a restaurant afterwards, discussing Europe, the conversation turned to the Eastern bloc, of which we all had minimal knowlege. Asked what I thought its future might be I said it was probable it would break up soon. This left my collleagues unaccepting - surely dissent had always been finally suppressed in the past?
That had been the case for a long time but to me the way people worked in the West had been and was changing, moving towards the removal of excess hierarchy and centralised control. Whilst this zeitgeist lasted it would have to have a counterpart in the Eastern bloc. Any screwing down of the lid there would most likely result in it blowing off. Fortunately, the lid was not screwed down too tightly but the break up still came. So, in a sense, the business world had been the forerunner of political change.
Now a little of the reverse is true. Society is changing quite fast, hauling politics in its wake, but the predominant business culture is monolithic, homogenising and resistant to change. It's behind.
A structural survey isn't going to be conducted in this review but one crack in the monolith has been mentioned before and so may as well be expanded upon.
Marketing has long been the magic wand of business. Wave it right and you could grow from small company to medium size to pretender to the crown. The downturn, though, has exposed its lack of an ethical underpinning.
With its emphasis on moving product and acquiring customers, target setting and paying bonuses, cross-selling and contractual frameworks that can lead the customer anywhere, it is at best ethically neutral and, when worse, disregarding of the individual.
It may be necessary for commerce but with the proviso that in the medium term over-reliance on it will inevitably destroy some trust. No amount of corporate communications can then overcome that.
This is why, though newer markets that have not experienced it much may beckon, in advanced economies, where full-blown marketing has been experienced for a decade, populations are growing weary of it and may prefer not to deal with companies perpetually cross-selling and loading the terms against them, especially if alternatives emerge.
So if this crack in the monolith widens, it is most likely to be when a recovery is under way.
Liberating capital to individuals, whence it came, and creating an environment where they and small companies can use it without too much predation will assist economic growth in advanced economies.