by Damon de Laszlo, ERC Chairman
One ended 2023 with a hope that the Season of Goodwill might have some impact, however small, on the two humanitarian disasters being created in Ukraine by Russia and Palestine by Israel. Two conflicts that are the results of long-term friction and strife between the four countries involved. Sadly, both conflicts seem to have become more entrenched and, if anything, more dangerous as we go into 2024. Added to this, there is a growing mistrust and frustration with political leadership and the establishment. People are feeling poorer as a result of inflation and frustrated with bureaucracy, which is a drain on people’s energy, whether you run a business or want an appointment with a doctor. European democracies are glued up by ever-increasing regulations enforced by bureaucrats who are not accountable to anybody. The US is slightly less serious, in that people have the ability to move from one jurisdiction to another, something that is nearly impossible in Europe.
This brings us, sadly, to the UK, a country that leads the world in catastrophically bad Government management of nearly all aspects of the economy. A docudrama of Bates, a sub-postmaster, versus the Post Office, has shown up in stark relief the failure of almost all areas of the UK’s ‘so-called’ ruling establishment to respond to a gross miscarriage of justice. A number of people tried to exclude Fujitsu from taking on a contract from the Post Office to implement a new computer system, as it was known of the company’s major failures on previous systems. It had spectacularly failed to install an IT system in the National Health Service that was supposed, amongst other things, to link patient notes of different surgeries to enable records to be sent from one doctor to another, saving huge amounts of paperwork. A contract that was terminated in 2008. Lawyers advised that it was not possible to discriminate against a company based on their past performance. Even since 2019, Fujitsu went on to win government contracts, even though the High Court ruled that their system had led to unsafe convictions. What is extraordinary, and frightening, is that this ruling was not taken up by the Supreme Court as a major legal system failure. Procedures were used to frustrate the defence and, in particular, the tactic of trying to deliberately win by causing the defence to run out of money.
Public anger at the Post Office, Fujitsu and the lawyers, I suspect, has not yet reached its highest point. Added to this, the clear failure of Members of Parliament, along with various government departments, has compounded public mistrust of the Establishment and the regulators. This blatant example of maladministration highlights a malaise in government regulatory bodies, of which there are many, but perhaps the second most publicly aware area is in the Water Regulator, whose abject failure to control the water companies and their sewage, is constantly being pointed out.
Lack of confidence in government and its institutions is not a unique UK problem. In the US the grounding of one of Boeing’s main workhorses points to, not only corporate failure but more worryingly regulatory failure. Conflicting policies across Europe and the US are myriad. Perhaps the next one to land in the public domain will be Energy Supplies. Electricity distribution systems, a highly regulated area, are failing to implement the building out of networks to meet the requirements to green the economy.
Moving from the glue and sand that hinders Western economies’ growth, there is good news. Economies have not gone into a downward spiral of recession as widely predicted. The small and medium-sized business sector, along with the new giant technological companies, are proving adaptable and versatile in dealing with change. Higher wages are helping and, until very recently, capital expenditure and productive investment have held up well although, political uncertainty is putting a slight damper on investment now.
Supply chain disruption, tariffs and the governments’ reshoring initiatives mean that inflation is unlikely to get down to the more recent historic levels, sub 2%. Quantitative tightening, dampening the money supply, and profligate government expenditure leading to increasing deficits, will tend to push interest rates up, despite Central Banks’ efforts to bring them down, more than perhaps half per cent or so. While interest rates may come down a bit, they are not at levels that impede productive capital investment. Hopefully, we do not get back to the levels of recent years which encourages huge misallocation of resources and heavily penalizes savings.
The Black Swans and known unknowns are by definition unpredictable from a timing and severity point of view: that aside 2024 will start to see a better economic climate for the majority.
Damon de Laszlo
15th January 2024