Breakfast with Business & Energy

Why don’t I understand what politicians say?

I had breakfast today with Michael Fallon, who is lucky enough to have two jobs: Secretary of State for Business & Secretary of State for Energy; in today’s world they are not perhaps the most obvious choices for a job share, but what do I know about running the country?

Well, when I say I had breakfast with him, he was on table 5 and I was on table 4, but I did listen to what he had to say after breakfast. I’m rather embarrassed to say I didn’t really understand much he said. No, I did literally understand what he said, but I didn’t “get” what he meant. All I really got from Michael was that the government was being very industrious (he had been speaking in all corners of the globe recently it seems) and they were doing their best to sort out the Herculean mess their predecessors left the country in.  Oh, and that Conservatives value tradition because they take a longer term view than other political parties!  It wasn’t until question time, when several people asked about bank lending, that we got onto a topic I could begin to engage with.

Implicit in what Michael said, and what is self-evidently true about the present government (but I fear it would be the same for any party in power at the moment ), is that no one has any idea what to do to encourage economic growth and get the economy moving again, or what to do about The Banks. In spite of that though it seems to be government policy to do something, even though they aren’t too sure what will work, in order to be seen to be taking action. I once worked with someone who was always walking around the office with a file under his arm. When I asked him what was in it, he showed me, and it was empty. He had just learned that if he looked busy people would think he was worth keeping around. I sometimes think that’s what politicians do too, no matter how well meaning and nice they are they often don’t have a clue what to do, but to say so would be political suicide. (We expect our politicians to be omniscient – isn’t that an ancient language they learn at public school?) Certainly, I have nothing against Michael; he seemed a very nice, smart, man.

Several questioners challenged Michael about the poor record of bank lending of late. He said it was terrible and needed to change. Sadly though, for him and us, what the banks are doing, by not lending to small businesses in particular, is not only rational but good business sense, as the risks of small business lending are very high. No matter what a small business’ track record is, the future is uncertain folks, and even lending to good small businesses should demand a higher return than most are willing to pay, or banks have the nerve to ask for, particularly at the moment, so better not to lend money then. But banks used to lend to small businesses, didn’t they? What has changed?

We and more directly perhaps, the political elite in this country, have been somewhat complicit in supporting a banking system that for years has taken wildly unjustifiable risks. They did it because, for many years, the slow-burn-speculative -bubble of high-risk lending, and the intoxicating alchemy of high finance, powered  GDP growth (the Finance sector makes up about 10% of UK GDP, but it is disproportionately influential on sentiment), which, in turn, fuelled demand in the economy. The very limited number of high street banks in the UK had huge profits, coming from various high faluting financial activities, which allowed them to be a little more relaxed about small business lending. In a way it was just a cost of sale, a tax on the freedom that politicians gave these financial institutions because, on balance, it seemed to be good for everyone, until now.

We have been in something of a Faustian pact with the dark side of Finance, that allowed us all we could dream of for a while, but now it’s pay-back time.

The only way to increase small business lending, on any meaningful scale, particularly to the higher risk borrowers, which is most small businesses, is for the government to underwrite it as they have done in the past. There is no way that commercial banks, now unable to play such high stake games with impunity, will do it on their own.

I guess I don’t understand what politicians say because they rarely tell it as it is, they seem to want to protect us for the harsh realities of life; sadly the real story isn’t very palatable, for them, or for us.


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