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Will Hutton - London Child Poverty Conference
 

Will Hutton - London Child Poverty Conference

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  • In the past it has taken between 36 and 48 months to return output to where it was at the start of the recession – as per the previous slide, this really is a very different recession
  • We need exports to pull us out of recession – but it can ’ t because we have a strategic trade gap which isn ’ t about to change
  • Can ’ t look to domestic demand to pull us out – huge deleveraging challenge remains.
  • Innovation is not a little bit more, little bit more concept. Disruptive forces and new ‘ general purpose technologies ’ are responsible for big bundles of change. Technologies, limited evidence about time clustering, but conceptual clusters and innovation overlaps Look at historical examples. Emerging blocks that potentially be just as large! Really hard to draw these waves, but to the extent that you can it looks like they are accelerating.

Will Hutton - London Child Poverty Conference Will Hutton - London Child Poverty Conference Presentation Transcript

  • PlenaryWill HuttonChair, Big Innovation Centre,The Work Foundation
  • Remaking the Social Contract in the wake of the financial crisisWill HuttonLondon child povertyconferenceDecember 10th12/06/12
  • Good capitalismThe future is by definition unknowable. No innovator or entrepreneur can be sure that a good idea will become a commercial reality – or that wider framework in which business is being done is stable. This is “Knightian risk” – risk that cannot be reduced to mathematical probabilitiesConsequently there is necessarily unpredictable change in business models – risk but also opportunityTo lift innovation and investment to optimal levels requires mechanisms for companies to lay off and socialise risk – and address co-ordination failures which are embedded in the market economyHence the importance of the ecosystem that underpins capitalism – co- created between public and private, a means of underwriting risk but which needs an attendant value system: equityRisk must be socialised for ordinary citiizens – the social contract12/06/12
  • The rise of bad capitalism…. Size of UK banking sector Banking sector assets (per cent of GDP) 600 500 400 300 200 100 0 1880 1904 1928 1952 1976 200012/06/12
  • Long-run equity capital ratios Per cent 30 United States 25 20 15 10 United Kingdom 5 0 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000Source: US – Berger, A., Herring, R. and Szegö, G. (1995). UK – Sheppard, D.K. (1971), BritishBankers’ Association, published accounts and Bank calculations.12/06/12
  • Trading books and leverage balloonGrowth in trading book assets Global banks’ trading portfolios and financial leverage Per cent 80 Line of best fit 40 T otal loans to customers as a 70 proportion of total assets UBS Deutsche 35 60 Financial leverage 50 SocGen Barclays 30 BNP 40 RBS Credit 30 Suisse 25 Citi BofA HSBC 20 T otal trading assets as a JPM proportion of total assets 20 10 0 15 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 00 01 02 03 04 05 06 07 T rading assets/total assets 12/06/12
  • All to create this model… Major UK banks’ aggregate balance sheet as at 201012/06/12
  • Return on equity in finance Per cent rose… 35 μ = 21.0 30 σ = 9.0 25 20 μ = 7.0 15 σ = 2.0 10 5 0 1921 1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 -5 -1012/06/12
  • And remuneration in financial services boomed…12/06/12
  • A brave new world: The profile of recession and recovery12/06/12
  • Sterling’s Actual Exchange rate ( v euro) compared to equilibrium 1.7 1.6 1.5 1.4 Actual 1.3 Equilibrium 1.2 1.1 1 1990 1995 2000 2005 2008 2009 1991 1992 1993 1994 1996 1997 1998 1999 2001 2002 2003 2004 2006 2007 2010 201112/06/12
  • A brave new world: A strategic trade gap Components of the Current Account (% GDP) base projection12/06/12
  • The West’s Dilemma - Bank assets as share of GDP 12/06/12© The Work Foundation.
  • A brave new world: A long deleveraging process12/06/12
  • Good capitalism as the way forwardUnproductive entrepreneurship v productive entrepreneurshipIncumbent v insurgents“Ownership tourism” v committed ownersDarwinian v CollaborativeFinance sole priority v business purpose and balanced score-cardTransactional workplace relations v hi trust workplacesRent-seeking managements v proportionally rewarded managersSocial contract as safety net v social contract as social insurance12/06/12
  • The times they are a’changingBiggest Bank of England balance sheet ever – including war-timeIntellectual climate changing - Governor of Bank of England: lets get flexible about inflation targets and defer lowering public debt/GDPProfessor Michael Woodford at Jackson Hole. Lets drop inflation targets and adopt targets for Money GDPThe IMF World Economic Outlook. A 1 per cent cut in budget deficit can lead to a 1.7 per cent loss of output. Keynes was right – too much austerity too soon is self- defeating.Antony Jenkins, Elizabeth Murdoch, Jack Welch, Richard Lambert, Alan Greenspan.Desperation of Coalition government – funding for lending, Business bank, Catapaults, infrastructure guarantees. Like the 1930s – reality is breaking in.Concern about social mobilityDecline of Tea Party Republicanism and Thatcherite Conservatism12/06/12
  • Knowledge based industries defined by the OECDNote: manufacturing classified by R&D intensity; services classified by ICT use and employment of graduates. Recreational and cultural industries recognised as knowledge based by EU but not OECD, and includes libraries and museums. 12/06/12
  • Knowledge economy and the 1.6 1980s recession and recovery 1.4 1.2 1index 1980 =100 0.8 0.6 0.4 KE market based KE public based Manufacturing Other Services 0.2 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 12/06/12
  • Knowledge economy and the 1.4 1990s recession and recovery 1.2 1 0.8index 1990=100 0.6 0.4 KE market based KE public based Manufacturing Other Services 0.2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 12/06/12
  • Knowledge based sectors leading the entrepreneurial revival Note: all figures employees, excluding health employment. Knowledge service industries are OECD definition and include business, high tech, andfinancial services. Other sectors include transport, retailing, hospitality and other services delivered by non-public organisations. SMEs defined as all with less than 250 employees. 12/06/12
  • A short history of general purpose technologies (GPTs)…12/06/12
  • Revolutions of ‘general purpose technologies’Different types of society and different historical circumstances have beentransformed by groups of technologies. Archaeologists have recognised thecrucial importance of ‘key factors’ in economic development in theirclassification of the ‘stone age’, ‘bronze age’ and ‘Iron age’ The Economists special survey "Innovation in Industry“ (20 February 1999) Economists Industry“12/06/12
  • Twenty-first century prospects ? Grand ChallengesThe mobile phoneNanotechnologiesEnergy from fusionAdvanced materialsCarbon sequestrationSpaceManage the nitrogen cycleWaterHealth informaticsDurable customised infrastructureCustomised medicineThe brainCyberspace securityEnhance virtual reality12/06/12 learningPersonalised
  • Innovation as the product of a system 12/06/12Source: NESTA
  • The Ecosystem ApproachDivision of Labour in reality is necessarily structured through organisations and institutionsAll confront risk which needs to be at the very least to be mitigated – and at system level risk has to be socialisedThere is thus co-dependence and co-creation of business models both within the private sector and between public and private sectors.Price mechanism cannot perform the co-ordination of relationships, information and idea flows – blockages, breakdowns and coordination failure thus the norm not a default possibility.12/06/12
  • The Ecosystem Approach ( cont )Public sector is socialiser of risk and designer/custodian of ecosystem within private sector – and the public sector componentThe system and actors have to be “open” to maximise interative flows of ideas/relationships/information – hence open innovation and absorptive capacity of firms crucial12/06/12
  • The Enterprising State BIC as a Microcosm of the UK Innovation Ecosystem Universities as interactive Intermediates partners University Consortium (8 Russell Group members) Private trusts: •Lord Sainsbury •Jon Moulton Financial services Digital and creative Professional services Manu- FMCG services Energy Pharma12/06/12 Innovative Sectors and Markets
  • New Flexibilities5/6 transformational GPTs likely during 50 year working life of a 2012 graduateOpen innovation business models new template – joint ventures, openness, porousness ( Unilever and “ open innovation orchestrators”)Average life expectancy of firms around 10 yearsAll skills and professions likely to become obsolescent12/06/12
  • What to do – macro economic policyMitigation of unknowable risks and consequential vicious/virtuous circles in credit and labour markets heart of Keynesian economicsIntegration of fiscal, monetary and financial policyAbandon public debt/GDP ratio target and replace with debt service ratioRewrite Bank of England mandate and replace inflation target with money GDP target12/06/12
  • What to do – ownership, investment and innovation ecosystemRisk mitigation to bring about more optimal levels of innovation and investmentCredit flows - indemnify new SME lending, Infrastructure bankInnovation – Catapault network plus Technology Strategy Board. Grants and Public R and D spend count!Ownership engagement and stewardship - tackle high discount rates, myopia and disengagementOwnership revolution: re-conceive the idea of the company. Business purpose/fiduciary duties/voting strength rises the longer shares heldSupport with new 3is and level playing field between debt and equity ( Mirrlees report )Develop institutional network for British Mittelstand12/06/12
  • Potential sectors“ Manuservices” in aerospace, pharmaceuticals, defence, high tech engineering( cars, chemicals)Low carbon economy – energy production, energy efficiency, green manufacturing plus associated servicesLife sciencesCreative and cultural industries – design, electronic/digital media and publishing, games12/06/12
  • What to do – a 21st century social contractSocialising risk – but through intermediate institutionsNew trade unions – as employment shock absorbers and enterprise partnersSocial insurance to re-legitimise social security. Payments more directly linked to benefitsFlexi-security – a new workplace bargain. Acceptance of less job security in exchange for12/06/12 training plus lifelong learning, higher more
  • Internationally …Support euro survival – banking union, financial transactions tax etcPeg pound to euroGlobal abandonment of inflation targetsGlobal implementation of VickersKeep trade open – protect four pillars of EU including free movement of peoples12/06/12 frightened of the BRICsDon’t be
  • Appendices and spare slides12/06/12
  • Potential sectors“ Manuservices” in aerospace, pharmaceuticals, defence, high tech engineering( cars, chemicals)Low carbon economy – energy production, energy efficiency, green manufacturing plus associated servicesLife sciencesCreative and cultural industries – design, electronic/digital media and publishing, games12/06/12
  • New Flexibilities5/6 transformational GPTs likely during 50 year working life of a 2012 graduateOpen innovation business models new template – joint ventures, openness, porousness ( Unilever and “ open innovation orchestrators”)Average life expectancy of firms around 10 yearsAll skills and professions likely to become obsolescent12/06/12
  • The Enterprising State BIC as a Microcosm of the UK Innovation Ecosystem Universities as interactive Intermediates partners University Consortium (8 Russell Group members) Private trusts: •Lord Sainsbury •Jon Moulton Financial services Digital and creative Professional services Manu- FMCG services Energy Pharma12/06/12 Innovative Sectors and Markets
  • approach: Common methodologies,theories, and diagnostic tools. - Integrate open innovation Competence approaches and distributed riskResearch themes: blocs:• Innovative management. • Big data and markets, places and networks digital economy• Innovation • Bio-Med, life friendly financial science and system12/06/12 health care
  • Partner investment for working together: An open innovation hub parNot just money… excellencePartners open their doors to share people and talent data ideasResearch, practice, trial testing, pilot companies, business and policy forums, and more….12/06/12
  • Where have the jobs been coming from over the last 30 years?Manufacturing – minus 3.8 millionHealth and Social care – 1.9 millionProfessional, Scientific and Technical – 1.5 millionAdministration and Business Services – 1.3 millionEducation – 1.1 million12/06/12
  • And don’t forget geography 160% London Total GVA growth 1995-2008 Milton Keynes 140% Cambridge Aldershot Reading 120% Derby Edinburgh 100% Mansfield Swindon Barnsley 80% R2 = 0.402 Birkenhead 60% 40% Blackpool Stoke-on-Trent 20% 10% 15% 20% 25% 30% 35% 40% Proportion of employment in Private Sector Knowledge Intensive Industries (2008)12/06/12