Only entrepreneurs can save the UK
On 21 October, there was a great letter in the FT from Martin Bodenham, the chief executive of Advantage Capital. He imagined a plc with revenues of £500 million and costs of £700 million, and with debts of £700 million predicted to rise beyond £1,000 million over the next three years – and asked whether “any sane investor” would put their money into such a company.
That company, of course, is the UK – only with figures in billions rather than millions. It’s a mess, says Bodenham, that won’t be fixed by cutting government spending, or by drastically increasing taxes for the middle classes or the super-rich.
The only solution is entrepreneurship – or, in Bodenham’s words, “an explosion of entrepreneurial activity of early industrialisation proportions”.
He is bang on the money. The recession brings opportunities, but only the most talented business leaders will see them, take them and change the world.
That’s part of the reason I’m getting involved with RAW 2010 – an initiative that will change the face of business.
If you’ve ever seen two entrepreneurs in the same room together, you’ll know what I mean when I say the atmosphere is charged with electricity.
The way they discuss ideas, the way they spark off each other, the way they identify synergies and opportunities – there is nothing more exciting to experience or more inspiring to witness.
Increase that number to 350, and you have a community with the power to change the economy – in the region, in the country, in the world. The North West led the way in the industrial revolution, and it will lead the way in the transformation of business following the worst recession we have seen since the 1930s.
It all starts on 20.01.10. The top 350 entrepreneurs in the region will gather with 15 of the world’s best speakers to listen, learn, collaborate and move the region forward. No professional advisers, no hidden agendas, no stale topics and no tired opinions.
But it doesn’t end there. RAW will become a movement that will expand networks and minds for even the best entrepreneurs in our region, with a powerful online community continuing to set the agenda for business.
Many of the elite group of 350 entrepreneurs will be from the Institute of Directors. However, I’d like to offer five additional places to any readers who feel that they would benefit from being part of the RAW community. Email me your contact details, together with why you qualify to be one of the people who will change businesses, change economies, change lives – change everything.
To apply for a place, visit www.raw2010.com and tell us why you should be there.
Illegal file sharing - the issues
News that Leona Lewis has become the latest victim of a computer hack has hit the headlines today. It is said to be the highest profile hacking case that the record industry has ever seen and could cost the former X Factor winner millions of pounds.
Discounting the cynic’s opinion that hackers are now in tune with Cowell's PR schedule as the new season of X Factor begins on Saturday, such pre-release leaks are highly damaging to the music industry.
In this case hackers stole and leaked three of Leona’s unreleased songs, which had been recorded for her new album, due for official release in November. It follows a similar case last month, which saw Alexandra Burke’s unfinished songs widely distributed over the internet.
Whilst the music industry has battled with the problem for a long time the issues of illegal file-sharing for the book publishing sector are just hotting up.
Google’s Book Search project, which has scanned ten million books in five years, enables any book on any weird and wonderful topic to be read and located with relative ease, rather than be confined to the dusty shelves of a distant library.
You would think this is great news for bookworms but publishers have reacted in horror. Google has overturned the traditional publishing contract by putting the onus on rights holders to opt out of its scheme to digitise “orphaned” books – those that are out of print but still in copyright – rather than opting in and Google keeps 37 per cent of any advertising revenue created.
Whilst publishers are currently concerned that someone else is making millions from their typically unread titles, we will have to see how this story unfolds. Perhaps, to avoid the problem for both industries, an allowance for digital book and music downloads will become part of mobile and broadband packages, which will ensure that they are paid for without having to rely on an individual to download within the law.
ENDS
Another £50bn into QE
It's silly season and so it's expected that some serious news slips through almost unnoticed but one aside today is that the MPC has pumped another £50bn into the QE gamble.
Is it working?
Signs are fairly positive but fairly nominal at the moment. We are seeing a rise in consumer confidence, high street sales are up as are factory output, house prices and mortgage approvals which is good. However all are minor changes and if I had invested £125bn into a scheme, I think that I'd want to see a bit more than 'minor' changes. Throwing another £50bn into the pot to buy more gilts is a bit like the student who having passed his credit limit at the bank no longer feels like they are spending their own money and so racks up a mountain of debt on the basis that it's sure to be somebody else's problem.
The QE project was supposed to free up liquidity for the SME sector but lending to businesses is still down. The reason is that many businesses are shying away from taking on any more debt due to doubts about future stability and also that those who are desperate for funds are often past the point of rescue and seen as a poor risk for the banks. As one banker said recently to me; " Wrapping a bad business up in the Enterprise Finance Guarantee Scheme doesn't make it a good business. Basic fundamentalities need to apply." Risk funding has gone out of the market and the banks reporting this week about profits generated show that only backing solid businesses and making a limited pool of money return as much as possible is a tactic that the banks seem set on.
I appreciate the action that the MPC is taking but I can't help wondering where we would be if we gave £175bn to the top proven entrepreneurs in the UK and saw how much wealth they would create with this pile. Your thoughts are welcome.
Quantitative Easing explained by Mr Bean
On Tuesday, I was invited by the Institute of Directors to a private lunch with Charles Bean who was on a roadshow to explain ‘Quantitative Easing’ and the likely impact of the Bank of England’s controversial project to buy £125 billion of assets (mainly gilts) to stimulate the economy.
The lecture took place in the stable room of a hotel which made most chuckle as the door remained open throughout even though no horses were evident.
Charles purposefully explained how QE is leading to more money in circulation and is allowing the banks to strengthen their reserves making them more likely to relax lending criteria which will open up more much needed funding to the SME sector. The charts then came out showing how the services and manufacturing sector have seen some recovery over the last quarter, the bounce in business confidence and how the spread between LIBOR and OIS is on its way down. In stark contrast however one killer slide appeared showing how the number of small businesses (sub £1m turnover) paying +9% over base on loans has exploded to +30%. This was explained away with a throw away line that “the banks were taking advantage to increase profit margins to repair damaged balanced sheets” – it’s interesting that this is at the expense of the businesses that are suffering most from the collapse of the financial institutions in the first place.
In fairness, QE does seem to be impacting. There is enough empirical evidence to support this and its aim to create a longer but smoother exit from recession to growth seems pragmatic but it did come across as one huge gamble. The figures are huge - £125bn is 9.5% of GDP – so it’s a big big bet. And it’s the last chance. Interest rates are down to the floor and public borrowing is at levels last seen only at the end of the second World War and before that the Napoleonic Wars. So if we have another dip (think swine flu, terrorist intervention or less extremely +3million unemployed impacting on the retail sector) then we have no where to turn. Charles Bean didn’t come across as a gambler but then I suppose you never can tell can you?
In answer to my question about precedents for such extreme QE projects, he stuttered that the last big experiment was Japan in the 90s. The results of that experiment? A decade of stagflation although the banks did OK out of it. Hmm.
Are we the victim in the expenses row?
OK, so the latest victim of the expenses debacle is Jacqui Smith (see BBC coverage).
To be honest, I am sick to death of this subject for one main reason. This whole protracted episode is dominating the news agenda and is stopping the news that matters from getting the oxygen it deserves. Did you know that although the Land Registry showed house prices have fallen again in April there are pointers that we are close to the bottom? (It's worth looking at our Property team's great blog on this subject). Where is the in depth analysis and debate on GM's decline? Have we actually had any debate on the European elections aside from a focus on the bad lads of Parliament. Anybody reading the Telegraph recently would be forgiven for thinking that all other life has stopped.
Don't get me wrong. Of course I feel that the expenses manipulation and fraud needed to be exposed. It exposes something far deeper - the fact that the system of remuneration has not only created the timebomb of mistrust in our democratically elected representatives but it has also finally shown that the reason that we have such poor representatives is that our best brains choose business over politics and until we reward our politicians at market level we will never get MP's that can make the difference that we so richly deserve.
