07 December 2011

The Deadly Years

Having been recommended two links by my erstwhile Co-editor, Hal Berstram, time for another Star Trek entitled post. The first was a superb BBC Documentary detailing the denouements of events at the Royal Bank of Scotland: RBS: Inside the Bank that ran out of money was a quite staggering tale of hubris, arrogance and a group of people who believed their own hype, not realising that their strategy was effectively a giant house of cards. Notorious former chief executive Fred 'the Shred' Goodwin is arguably the biggest bastard revealed in the course of the documentary but effectively the entire board failed utterly in its duty of car to the customer and the investor. That they have all been rewarded quite handsomely for the failure speaks volumes about the state of UK finance today. The second link was another acerbic, and very timely piece by Larry Elliott, Economic editor (and arguably the best columnist) in the Guardian, describing the current economy as like something out of a George A.Romero Production

What lessons can we learn about the Best way forward? Arguably the closest historical parallel in recent times (as opposed to the 1930s) is offered by the Japanese experience. Since the collapse of a massive commodity boom at the tailend of the late 1980's, Japan has experienced at least one, and some commentators would say two 'Lost decades' with anaemic growth rates, ongoing price deflation and general economic stagnation. The reason why the Japanese example is, for me, so relevant today, is I, and I'm assuming a ,lot of other 'normal' Newspaper/online news junkies have lost count of the number of 'stimulus packages' or 'deficit reduction programmes' which have been produced or mooted to bail out the Eurozone. It is eerily reminiscent of Japan during the 1990's where a succession of governments whose initially lukewarm reception sank to usually single digit poll ratings put stimulus package after stimulus package forward, and nothing seemed to have any impact. Elliott's 'zombie banks' phrase originated in the land of the Rising sun, although it was applied to any enterprise (not just bank) which was considered 'Too Big to fail'. A small recovery was only possible (in the latter part of the 1990s and early in this century) when a reforming Finance minister basically forced his country's banks to confess up the scale of their losses. Given the globalisation of the economy in the last decade, increased external pressure has meant, like every other G30 economy Japan has been buffeted by the ongoing global economic crisis, and the March tsunami has also caused major structural damage, both literally and in an economic sense for a manufacturing economy highly sensitive to production delays, but nevertheless, they are well ahead of the West on this particular curve.

The worry for Western policymakers is that having visited Japan, and seen their country's infrastructure, organisation and efficiency as immeasurably superior to almost any European country I have visited (Aside from maybe Germany, Norway and Denmark), one wonders how long it will take the UK and the rest of Europe to recover from a similar toxic scenario of wildly inflated asset prices (UK housing anyone?), massive debts and economic sclerosis. Lest we forget the Japanese savings ratio is significantly higher than the UK, their populace is amongst the world's most educated. They are culturally somewhat 'old school' and work hard, with minimal expectation of the state providing for them in the event of an emergency. Their 'Deadly Years' have already lasted for almost two decades. Given the damage wrought by 5 decades of Socialist education policies, the level of dependency created by Labour in the period 1997 to 2010 and the collapsing state of UK infrastructure, how long will our own 'Deadly Years' endure for?

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