Feel The Fear And Do It Anyway

As a lawyer, maybe I ought not to see risk as a positive force, but I do. If I did not, I would never have ridden a bicycle, horse or motorcycle, played rugby, scuba-dived, rowed, sailed, skied, driven vehicles, flown, or become involved with start-ups. Of course, I might never have fallen off, over, into, under or onto anything either. But the risk of falling - of failure - is actually what has made all these things FUN.

I'm actually not being facetious. Sir David Latham expressed his concern about overreaction to risk in the context of the furore over the 'early' release of prisoners, in light of the Venables case:

"I'm concerned that the society we're presently living in, is becoming too risk averse. That means that society is perhaps unrealistic about the level of risk it should be prepared to accept."

Boris Johnson made a similar point in his recent article on the plague of ski helmets:

"...there is something strange here, a mutation in the Zeitgeist. I reckon the helmet mania is more than just a question of fashion or a re-assessment of the medical risks of skiing. It’s a sign of the psychological state of the Western bourgeoisie in the grip of an economic crisis. They have seen what happened to the risk-taking bankers; they have seen how the sky fell in on the insouciant system of free-market capitalism; and so they literally cover their heads as an expression of the safety-first mentality that has seized us all."

Global concern about risk in the financial markets goes back along way. The Basel Committee on Banking Supervision was created in 1974. Yet even after all those years of careful work, and several Basel Accords, the Committee has been unable to prevent numerous banking meltdowns and ultimately the Credit Crunch. This is why placing further constraints on the financial markets is unlikely to work, and why I advocate simplifying them and opening them up to everyone instead. People may look upon that as a might leap of faith, but I've witnessed firsthand the way Zopa, the person-to-person lending marketplace launched in 2005, has grown nice and steadily throughout a period when the 'traditional institutions' were the ones exploding with bad debt.

Even today, we're being hectored by mainstream media interests to avoid choosing a coalition government in the UK. To hell with them all, I say. Feel the fear and do it anyway. It'll be FUN.

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Tactical Voting: Hung Parliament?

People are asking about how they might vote 'for' a hung Parliament. Well Tactical Voting suggests the constituencies between which voters could swap their votes to help produce that result, and where you might go to discuss and arrange it. The 'Voting Buddies' group on Facebook is one example. Alternatively, you could go to Hang 'em to see if you're able to vote for a candidate they suggest.

Or you could vote for a minority party that has a shot of winning your seat, or whichever of the major parties the polls suggest will take second place.

Toby Young points to scepticism about the impact of tactical voting. But it will be interesting to see whether the Facebook, Twitter and the other social media help voters unleash its potential this time around.

Hung Parliament - More Pressure?

Many people would like to have rolled out the tumbrils for the UK Parliament in the past year, but a 'hung' Parliament is of course something quite different. And 38 Degrees is rightly running a poll to see if people want to hear more about the pro's instead of being heckled by The Sun and other mainstream media about the con's. I've said that I do.

Esentially, a hung parliament exists where no political party has a majority of seats. So either several parties agree a coalition and form a majority government, or a single party must form a minority government and horse-trade with the others on key issues. If neither works on critical issues, like budget approval, there would need to be another election.

The BBC has tried to explain it, but gets mired in speculation about numbers. A short Wikipedia entry has just been created. It links to the BBC explanation and a Q&A by the Institute for Government, an apparently politically neutral think-tank, which is also concerned about the unduly negative portrayal of hung parliaments in the media:

This has been reported quite negatively and has generated predictions that unstable and ineffective government would be the result.

However, as argued in 'Making Minority Government Work' by the Institute for Government and Constitution Unit, this need not be the case. Indeed, minority or coalition government can even have advantages, though ministers, the opposition, the civil service and the media would all have to adapt their behaviour to make it work.

This sounds promising. Basically, all politicians would have to behave much more reasonably and responsibly to try and forge consensus, and the media would have to refrain from senselessly branding the process as unstable and chaotic. After all, the democratic process should be messy rather than engineered from the top down in a nice orderly fashion. A dynamic, open system which encourages broad engagement by all stakeholders cannot realistically appear neat and linear.

I suspect that the biggest driver of the negative airplay - particularly at The Sun - is that Gordon Brown would remain PM, and would be the first to be invited to try and form a government. Given his record for clinging desperately to power to date, one does wonder whether we'd ever be rid of him.

However, while the fear and loathing of Swinegate has exposed Parliament to more public scrutiny and produced a little more accountability, it seems we have a long way to go in educating the politicians that citizens come first. And a hung Parliament seems a great way of keeping the pressure on.

The Elephant In The Room Makes It A Grim But Simple Choice

The electoral "elephant in the room" is exactly how the next UK government will eliminate the country's £90bn structural deficit - the core part of the £167bn in overall public borrowing we can't pay off in the usual ebb and flow of the public finances.

Everyone is rightly speculating about the likely mix of higher taxes, spending cuts and the role economic growth will play if each political party were elected. But the detail will change and is ultimately a distraction for election purposes. The short answer lies in the basic party philosophies.

In essence, Labour believes the public sector is the economy, and the private sector - including individual taxpayers - is there to support the public sector economy for the common good. That's why they keep saying that tax cuts (i.e. lower public income) and reduced public spending would 'take money out of the economy'. Therefore, Labour's primary goal is to suck an extra £90bn out of the private sector into the public sector in the coming years, over and above 'normal' levels of taxation. Job done. Curing public sector waste and inefficiency are secondary, and not even necessarily 'nice to have', particularly for the unions who've contributed substantial sums to the Labour party.

By contrast, the Tories/LibDems believe the economy comprises both the public and private sectors. Which is why they keep saying that avoiding a rise in National Insurance will boost economic growth by leaving money with individual people who'll spend it to greater effect - more quickly and on local goods and services - than wasteful government departments who spend vast sums on overhead but ultimately produce nothing. So, while the Tories/LibDems would also need to hike taxes to some extent, they would primarily focus on reducing public sector waste and inefficiency to minimise the amount of money that has to be diverted from productive private sector activity into the public sector. Where those two parties differ is that the Lib Dems want the public sector to do much more than the Tories do, which is why the Lib Dems are always coming up with random additional taxes to pay for it all.

However, life is what happens while you're making plans. Labour's immediate problem is that the private sector is already stretched thin, conserving cash to repay private debt and rebuild savings in light of concern for the future. That's why they talk about delaying plans for the National Insurance hike (and no doubt other increases) until the economy's had a chance to recover, while the Tories/LibDems talk about reducing public sector waste and inefficiency now, to avoid the need for Labour's planned NI increase and minimise future tax rises.

So it's a straight choice, but a grim one. Higher taxes in the coming years and little change in the public sector under Labour. Public sector reform with a bit more cash in your pocket under the Tories, and somewhere in between under the Lib Dems.

SME's Shun Bank Finance Offerings

Interesting report today that "less than half SMEs have taken action [to address cashflow pressures] with 11pc hiring an in-house credit controller, 9pc using invoice discounting and 8pc factoring". There are over 4.7 million SMEs in the UK (see demographics below).

According to the Telegraph:

"Peter Ibbetson, chairman of NatWest and RBS small business operations, is concerned that so few SMEs are using banking services to alleviate the problem but small business organisations believe companies are reluctant to incur extra charges after their bank borrowing experiences."

In other words, it appears SMEs would rather leave debt on their books, taking any loss and resulting income tax deduction, than become hog-tied by a bank at rates of about 36%APR in consumer finance terms - at least that's the rate we estimated Zopa lenders would have to beat to offer attractive trade finance. That's because you should factor in (excuse the pun) the charges on any additional accounts you're required to hold as part of the finance deal, the holding cost of any deposit held as a guarantee, as well as fees and the interest rate on any overdraft, loans, letters of credit and/or factoring. SME owners are also increasingly required to take a commercial credit card, which doesn't benefit from protection from all the old dirty tricks that are gradually being weeded out under consumer banking and finance regulation.

Yet more evidence the time is ripe for an alternative source of SME trade finance?

The most recent UK government statistics (published Oct '09) show that, at the start of 2008, there were 4.8 million UK private sector enterprises of which 99.3 per cent had 0 to 49 employees. Only 27,000 (0.6 per cent) had 50 to 249 employees and 6,000 (0.1 per cent) employed 250 people or more.