Anthony Hilton: To be more like Americans, Europe should do what they do, not what they say they do

Vince Cable and Nick Clegg were on the stump this week visiting factories and announcing another pot of money to help businesses invest and grow.

Their efforts prompted a few headlines and an interesting comment from the EEF – once known as the Engineering Employers Federation – now, with the CBI, a leading business lobby group.

As one would expect, the EEF's Steve Radley welcomed this visible commitment to manufacturing, but then explained why it was not enough. If Government really wants to get things moving, he said, "we need to see a reinvigorated effort to set out its ambitions for our economy to the end of this Parliament and the policies which will deliver them."

That seems like common sense, but in fact what he is calling for is an industrial policy. However, such is the stifling legacy of Thatcherite thinking in Whitehall and Westminster that no politician or civil servant dare suggest such a thing for fear that the policy will be instantly derided as "government picking winners".

Because government can't pick winners, policy goes to the other extreme, with government instead trying to get out of the way. It consciously tries not to have a policy other than to remove as many as possible of the regulatory impediments which clog up the market and making sure there is lots of competition.

That is also the solution it urges on the rest of the EU. The theory is that business will do the rest. Sclerotic, state-controlled Europe will become like dynamic, free-market America. The next Google will be invented here.

Except business and Google won't, and the reason, according to Mariana Mazzucato (pictured), a brilliant economist recently appointed to a professorship at the University of Sussex, is that most leading-edge inventions which are the foundation of the modern economy were invented in the public sector with public money.

This is America's guilty secret. The algorithms which underpin Google were developed in the public sector. The technology in the Apple iPhone was invented in the public sector. American leadership in computers, biotech and nanotech is the result of conscious decisions within American government to direct research and public money into these areas.

In America it is recognised that in the early years of any new technology government has to make the running because the private sector will not. Government-funded research and innovation done at a time when there is no sign of an end product or commercial gain is the essential foundation for later success and recognised as an essential purpose of government.

The US government has a conscious policy of picking winners and it works, says Professor Mazzucato, because it has a willingness to fail and an expertise which comes from having done this kind of thing for years.

Because of this misunderstanding of what Americans actually do, rather than what they say they do, policy in Europe is heading entirely the wrong way. Instead of dismantling the public-sector involvement in business so we can be more like America, we should be going in absolutely the opposite direction. We should be encouraging a greater role for the state, not a reduced one.

Think of that in a couple of weeks' time when, at the Budget, the Chancellor will no doubt announce plans to revive British business, by cutting taxes and red tape.

US banks' $20bn fine just a cost of doing business

The talk in New York at the beginning of the week was all about the latest twist in the subprime scandal.

Having lent to people money who could not afford to repay, the banks have now been found to have routinely abused the process by which they can legally try to get some of the money back.

Indeed, so casual have they been in their approach, that the leading US banks agreed with the authorities that they should pay $26bn (£16.45bn) into a settlement fund to offset some of the damage done by the legally incorrect way they have been foreclosing on mortgagees who have fallen behind on their payments.

It is a measure of the times in which we live that many think not only that a $20bn fine lets the banks off lightly, but that it won't make any difference to the way they behave.

US homeowners are under water to the tune of about $700bn, which means that $20bn of relief is neither here nor there. More to the point, the foreclosure task is so gargantuan that the banks don't have the resources to deal with it.

The core problem is that the system was never designed to deal with the ownership complexity created by securitisation. It was designed for a world with one lender advancing one mortgage to one owner. But when pools of mortgages are packaged up, sliced and diced into collateralised debt obligation securities and then sold to many different parties right across the world, it creates a situation with hundreds of owners holding a small slice of hundreds of properties. They probably don't know or have never checked what they own, but legally they all have to be part of the foreclosure process.

It is a mind-numbing task threading through the securitisation process to find the beneficial owners. The banks simply cannot find lawyers willing to do it for more than a few days before they quit. So they cut corners, and that $20bn settlement becomes just a cost of doing business.

Bonds and gold leave Warren Buffett cold

Bond prices move in the opposite direction to interest rates. Interest rates as low as they are now means that bond prices will plummet when rates start to rise to more normal levels.

This has prompted a nice line over in the US earlier this week from the world's most successful investor, Warren Buffett. He says bonds are now so dangerous they should come with a warning label.

The irony is that the major holders of bonds there and here are pension funds, and they have bought them in such huge quantities at such dangerous prices because conventional wisdom, peddled by consultants, is that putting money in bonds takes the risk out of pension fund investing. On their models, investing in Greek, Portuguese or Irish government debt is safer than investing in Tesco's bonds.

Mr Buffett, being a traditional investor, thinks the value of an asset is directly related to the quantity and the certainty of the income it generates. This led him also to be scathing about gold – another of the current investment fashions – because it produces nothing and yields no income.

If all the gold in the world was melted down it would create one cube 68 feet square, and be valued at $9.6 trillion. "But," he asks, "why would you want that cube rather than its dollar equivalent, which is all the crop-yielding land in the United States plus 16 Exxon Mobils [the world's most profitable company] and $1 trillion in cash left over?"

a.hilton@independent.co.uk

PROMOTED VIDEO
Voices
Ukip leader Nigel Farage arrives at the Rochester by-election count
voicesIs it any wonder that Thornberry, Miliband, and Cameron have no idea about ordinary everyday life?
Sport
sportComment: Win or lose Hamilton represents the best of Britain
Life and Style
tech
News
ebooksNow available in paperback
Sport
Arsene Wenger reacts during Arsenal's 2-1 defeat to Swansea
footballMan United and Arsenal meet on Saturday with both clubs this time languishing outside the top four
News
i100BBC political editor Nick Robinson had a lot of explaining to do
Life and Style
Nappies could have advice on them to encourage mothers and fathers to talk to their babies more often
newsTalking to babies can improve their language and vocabulary skills
Sport
Tony Bellew holds two inflatable plastic sheep at the weigh-in for his rematch with Nathan Cleverly
boxingGrudge match takes place on Saturday night
Arts and Entertainment
Mark Ronson at PS1
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

Immigration: Obama's final frontier

The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

Bill Cosby rape allegations explained

Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

You know that headache you’ve got?

Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

Scoot commute

Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
Paul Robeson: The story of how an American icon was driven to death to be told in film

The Paul Robeson story

How an American icon was driven to death to be told in film
10 best satellite navigation systems

Never get lost again: 10 best satellite navigation systems

Keep your vehicle going in the right direction with a clever device
Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

Paul Scholes column

England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

Michael Dawson: I’ll thank Spurs after we win

Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

Frank Warren column

Dr Wu has big plans for the professionals yet he should stick to the amateur game
Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

Terror unites Jerusalem after synagogue attack

Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

'How do you carry on? You have to...'

The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
Isis extends its deadly reach with suicide bombing in Kurdish capital

Isis extends its deadly reach with suicide bombing in Kurdish capital

Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
Underwater photography competition winners 2014 - in pictures

'Mysterious and inviting' shot of diver wins photography competition

Stunning image of cenote in Mexico takes top prize
Sir John Major: Negative West End portrayals of politicians put people off voting

Sir John Major hits out at theatres

Negative West End portrayals of politicians put people off voting
Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

Kicking Barbie's butt

How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines