Facebook’s bubble inflates while the Eurozone’s deflates
IT is truly astonishing that one of the greatest company flotations in history is taking place in the middle of one of the greatest financial crises in history. Facebook is going to market, raising $16bn and valuing the firm at a ridiculously optimistic $104bn in the biggest technology initial public offering (IPO) in history; meanwhile, Greece’s woes have spread to Spain, as the Eurozone moves ever closer to the next stage of its slow-motion crisis. Moody’s decision to downgrade 16 Spanish banks last night, including Santander’s UK subsidiary, was merely the latest blow.
The symmetry is striking: as one bubble inflates, another deflates. The difference, of course, is that Facebook is a great company, albeit one that is being over-valued; the Eurozone was always a flawed construct, a grandiose scheme that will eventually help destroy the region it was supposedly trying to unify. The two stories are telling in other ways too. Greece may once have been the world’s greatest civilisation – but tragically it is now in an abject state. The great innovators were once in Athens and the Greek city-states; they have long since moved elsewhere, not least to Menlo Park, California, home of Facebook.
The problem for Britain is two-fold: it is not developing enough new world beating companies. There is still no British Facebook. And it isn’t really doing anything significant to protect itself from the fallout from the Eurozone crisis – even more quantitative easing, as the Prime Minister implied may be the answer yesterday, is hardly enough. What is needed is a solution to both problems simultaneously. The coalition’s Plan A – lots of tax hikes, spending cuts of 1 per cent a year for six years and even more red tape and tinkering – isn’t working; the opposition’s Plan B – spend a few billion more than the coalition and tax the City even more – would make matters even worse. What we need is a plan A+: genuinely restrained public spending combined with radical deregulation and a tax system that is pro-growth, pro-entrepreneurs and pro-capital formation.
That is where a major research project that I have been leading comes in. On Monday, the 2020 Tax Commission – a body of economists, business people, think-tankers and journalists – will be releasing its final report, a 417-page treatise on how to reform Britain’s tax system to boost growth and incentivise work and investment. The Commission – of which I was privileged to be the chairman – was set up by the TaxPayers’ Alliance and the Institute of Directors; its mission was to draw on economic research, international experience, history, philosophy, psychology and opinion polling to map out what a government that was seriously committed to boosting competitiveness would do to the tax system.
The result is the most comprehensive, evidence-based and detailed case for lower taxes, lower spending and a dramatically different, simpler, more transparent and fairer tax system made in the UK for several decades. I will be writing about the detailed proposals we are advancing, as well as some of the findings from the dozens of academic papers we reviewed, on Monday; we will also be publishing a series of articles in our Forum pages on various aspects of our findings.
The Eurozone crisis means the UK government can no longer continue with business as usual. The chancellor’s plans cannot survive a major implosion of the single currency. He needs to be much bolder. We need to become an economy that can produce its own Facebooks to grow ourselves out of recession – not one where the answer to every problem is to print more money.