Margareta Pagano: We could come out of this crisis in much better shape
Sunday 16 November 2008
Is all this gloomy talk making things much worse? This may seem a little odd to ask after a week in which more than 20,000 people lost their jobs. On Friday another 3,000 jobs went at Royal Bank of Scotland while Citibank said it was slashing 10,000 jobs , many of them at Canary Wharf. Two more banks, Clydesdale and Yorkshire, are planning to cut 350 jobs and many more thousands will go from financial services.
While few will shed tears for the bankers, it was also the week when the extent of the downturn in the "real" economy hit home. BT is reducing its 100,000-plus workforce by 10,000, while JCB, Virgin Media, Yell, GlaxoSmithKline and Taylor Wimpey also cut their workforces.
Even John Lewis is struggling, with sales now down for the eighth week in a row. Worst hit of all was its Sloane Square Peter Jones store, home to the ladies who lunch and who usually spend the bonuses of their banker husbands with such gay abandon. Its sales were down 18 per cent. This week Emap and Carphone Warehouse are also expected to report bad news. Nor is this a recession that is hurting particular sectors of the economy; it will hit indiscriminately across all industries. Estimates that unemployment could reach two million by Christmas don't look far-fetched.
But just as the media has been criticised for fuelling the credit binge of the last 15 years, is it now overdoing the downturn with its Armageddon- style reporting? Are we, with our relentless doom and gloom, actually stopping those who do have cash from going about their normal business and saving us from the slump?
I asked Oliver James, the author and psychologist whose chronicles of our materialism in his books, The Selfish Capitalist and The Origins of Affluenza, have done so much to highlight the excesses of the past few decades, whether once again the press is going over the top.
No, he says, surprisingly, the media has got it right. James says people have put themselves on hold as they are so terrified about the future: they know the fools' paradise is over.
And it could also possibly be the best thing that has happened to us – in the long term. As James points out, Britain has one of the highest levels of mental health illness in the Western world – not as high as in the US but double the levels in continental Europe. He blames much of this on the individualistic, driven nature of our neo-liberalism, as well as on our high levels of illiteracy and family breakdown. Tougher times might force people back together again.
He's right: this is a time of great opportunity. This crisis might also mean that Britain starts making things again. One of the silver linings of the City's downturn is how many bankers and traders, most of whom have good maths and science training, are becoming teachers. That in itself could help lead a renaissance in the quality of teaching in our schools. Recruiters are already seeing that school-leavers and graduates, who had wanted to work in finance, are switching to manufacturing and engineering – not so high earning but certainly more creative and rewarding.
It's ironic, perhaps, but this is Enterprise Week in Britain and 77 other countries. More than 1,000 business owners are due at the Entrepreneurs event in London on Thursday to hear former England rugby captain Lawrence Dallaglio speak about leadership and Zac Goldsmith talk about social entrepreneurship. Who knows, there may even be some good news.
Victorian values Grand days return to the Royal Institute
Lectures at the Royal Institution of Great Britain were so popular in the 19th century that the Victorians turned Albermarle Street, near London's Piccadilly, into a one-way street to cope with the traffic. Baroness Susan Greenfield, the glamorous scientist and writer who is the RI's chief executive, says she wants to make it even more popular now that the museum, the laboratories and restaurants have been so fabulously refurbished and opened again to the public.
On Tuesday Lady Greenfield hosts a launch party for the famous Christmas lectures for children, first started by Michael Faraday in the 1820s. Professor Chris Bishop, chief scientist at Microsoft Research in Cambridge, will be giving this year's five lectures on the future of computing, which start in December and will be shown on Channel Five at the end of the year. It may not be enough to stop the traffic but Lady Greenfield expects more than 400 people to turn up to hear Mr Bishop.
It's better that Paulson changed his mind rather than being pig-headed
Just how many lives does Hank Paulson, the US Treasury Secretary, have? After escaping being skinned when his original bailout fell foul of Congress, the former Goldman Sachs man has managed to pull off a complete change of plan and still emerge unscathed.
Paulson changed his mind because the first plan to buy toxic mortgage assets from the banks would have taken too long to work, but also because it became clear through October that it simply wasn't drastic enough to work. Instead, the rest of the $700bn Tarp fund is being used to buy shares directly in the banks and other financial firms. In fact, Paulson is now doing what many economists told him to do at the time. They argued then that injecting capital into the banks would be much more efficient as it would mean they could leverage money that they could lend in turn to customers.
That he didn't listen hard enough then is unfortunate, but he shouldn't be criticised for doing a U-turn. As he said last week, he won't apologise for changing an approach when the facts change. Surely this is much better than pushing on with a policy just because you can't admit you got things wrong.
Now Paulson will extend the scheme to non-bank institutions that buy and sell credit card debt and student and car loans, though so far he has refused to shore up the car industry.
But what has emerged from this U-turn is the extent to which all the world's policy-makers underestimated how severe the downturn would be when it finally spilled into the real economy. All the economic data for October was worse than anyone, anywhere, had anticipated and it's getting worse still.
This weekend's grand summit of politicians in Washington is likely to bring only hollow rhetoric. Sadly, the situation and the markets are going to be unsettled until Barack Obama takes over.
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