UK Government: Gamble All You Like, But Don't Invest

You've got to wonder about priorities at the Department of Culture Media and Sport. They allowed UK bookmakers to harvest £46 billion through betting machines last year - not to mention the bingo and lotteries freely advertised on TV - while computer games companies complained they can't offer shares to fans who crowdfund games development. 

Consider this from today's Telegraph:

• Britons gambled £46 billion on betting terminals last year, an increase of almost 50% in four years.

• Gamblers lose up to £100 every 20 seconds on the fixed odds machines.

• 588,000 under-18s were stopped when they tried to enter a betting shop last year, six times as many as 2009, and 27,000 people were challenged once they had placed a bet.

• Bookmakers made profits of £1.55 billion from the terminals between April 2012 and March 2013.

Meanwhile, even though the FCA has said that ordinary folk will be able to invest to fund the development of a computer game, for example, they must first certify that they will not invest more than 10% of their 'net investible portfolio' and either seek financial advice or satisfy an "appropriateness test". That's because they say investing is risky for consumers... 

Compared to what?!

Image from RoehamptonStudent.com. 

Do TV Advertising Rules Limit Economic Growth?

There has been plenty of research into the alleged effect of TV sex and violence on human behaviour, but how does TV adversely impact our economic behaviour? 

This issue was recently highlighted by the FCA's proposed new rules on crowdfunding. Left in isolation, the current restrictions on financial promotions suggest the State would prefer us to play bingo or buy lottery tickets than invest the same small amounts in funding the growth of each other's businesses. 

The FCA is right to point out the risks of investing in start-ups, but it should compare those risks to the risks consumers face when putting their money into other products that are more freely advertised.

We rely on small businesses for over half of all new jobs and a third of private sector turnover. Yet, those small businesses struggle for funding while over half of the UK's adults engage in regulated gambling that is designed to cost consumers far more than they 'win'.

It may be true that over half of business start-ups fail within 3 years, but they still employ at least one person in the meantime. And maybe more of those businesses would survive if we lent them some of our bingo money, or bought their shares with at least some of the money we chuck away on the ponies. Better that the money goes in wages, and the goods and services that small businesses typically buy, rather than simply to line the pockets of the bookies - and you have the chance of getting a decent return on small business loans, or if you happen to invest in the businesses that succeed in the longer term. 

No doubt someone will raise the moral panic about 'good causes' being starved of lottery money if we don't allow the promotion of that form of gambling. But I'm not talking about any ban on advertising lottery or bingo etc., just a relaxation of rules on the promotion of productive financial instruments (though it would be more efficient to simply donate a third of your lottery money directly to good causes on a crowdfunding platform than to wait for it to filter through the books of a lottery operator).

Ads for apparently 'safe' bank savings products are not helpful here, since savings rates are low and banks are not focused on lending to small businesses. We have over £200bn sitting passively in low interest bank deposits, yet banks' savings rates are below the rate of inflation, and banks only lend £1 in very £10 to SMEs. The Financial Services Compensation Scheme might protect your deposit if the bank goes under, but that's another cost that consumers end up paying for, and it won't protect the value of those deposits against inflation. Stocks and shares ISAs and pensions are similarly 'passive' investments in financial assets, rather than productive ones.

The highly restrictive approach to financial promotions has neither prevented financial scandals nor created a sound financial system - two of many reasons why people have resorted to lending directly to each other, or investing directly in each others' projects and businesses. So why not allow these new alternatives to be promoted more openly - at least to the same extent as riskier, non-productive activities like playing bingo or buying lottery tickets?

We need to move away from rules that dictate what we can do with our money, to rules that enable a fully informed choice from amongst all the options. 

At any rate, the State should certainly not create a situation where the money-related messages which the average TV viewer receives do not include investing directly in the productive economy.

Image from RoehamptonStudent.com.

The Future Is Not Behind Us, It Lives Locally

For every old saying there's an opposite. Today's conflict lies in the adage that "those who don't know history are destined to repeat it." Yet "our history is not our destiny." This leaves a fine line between useful historical insight into how the world works and steering solely by what we see in the rear-view mirror. The distinction becomes critical as we lurch ever more quickly from one financial crisis to the next.

So what lessons from recent history will help us move foward, and which should go in the scrapbook? Here are 5 that I think are worth taking forward, in no particular order:

1. Clearly, the Internet is not a fad. Consumers are the winners, aided by facilitators in their battle against our creaking institutions. Yet e-commerce is still only 10% of all retail. And we are still in the 'primordial soup' phase in the evolution of our tools for extracting meaning from the great, chaotic swirl of data. So this trend has a lot more mileage in it yet and will sweep across more service sectors - if you can buy it online and have it delivered it won't be sold in high volumes on the high street. In fact, it might even be made locally...

2. In addition to democratising services, the Internet is also returning the means of production to local communities through e-enabled machines. Remote/home-working is replacing central workplaces and 'factories' are getting closer to customers, requiring a rethink of corporate systems, processes and supply chains. Huge production plants and sole-occupancy office towers will gradually become a thing of the past. High streets may well regenerate to support this trend, or as a result of it.

3. Cities with at least 3 private workers for every public sector worker see the most growth. Give that some thought if you live in a city near the bottom of this chart. This chimes with findings that economies (regional and national) whose public spending exceeds 35% of their GDP struggle to grow. You have to feel sorry for Northern Ireland...

4. The public sector is very inefficient and needs to act locally - public institutions are already being relentlessly affected by lessons 1 and 3 above, and 2 should increase  the pressure. Civil servants really have no alternative but to spend public money more wisely. Meanwhile, we'll help drive down the cost of government by dealing with the government online. Big government offices must surely go eventually. Fortunately, the moves to devolve more power to local government coincide here, but I don't think we should be fooled into thinking that's part of any real plan to future-proof the UK...

5. The UK's financial system is seriously inefficient at allocating money to people and businesses. The fact that we all rely heavily on a few major banks for whom lending to small businesses is not a core activity is part of the problem, but innovation and competition are constrained by our outdated and rigid regulatory framework and the related incentives. Crowdfunding, or peer-to-peer finance, platforms are springing up all over the country, and are increasingly focused on specific sectors, activities and locations.

In short, if I were a civil servant (see 4) based outside the south east of England (3), I would start an Internet-based service (1) that efficiently provides low cost finance (5) to help localise the means of producing stuff using e-enabled machines - or buy my own 3D printer and start renting it out (2). Now. 

Image from KC Anderson.