We hear a lot about globalisation these days; how money, people and business move freely around the world (although that has had a few teeny problems of late) and how countries must therefore compete in that market for investment, and ultimately jobs and economic success in general. Much of this is true and common sense, however, I do object to the tone and emphasis that is used whenever this argument is made. There seems to be a preference of late for attracting external players to flirt with local economies for as long as possible before they get bored and move somewhere cheaper, rather than focussing on organic growth of businesses from within the existing local entrepreneurial base. You can do both of course, but in recent years I’ve observed that here and in some other places in the world, the balance is strongly in favour of the short-term plan of courting of large, external players, versus the long-term prospects of ‘growing your own’.
Of course, inward investment is a good thing, but too often this investment isn’t in new local businesses, it’s simply about grafting a globally mobile business to the local economy for a while, usually as a result of some kind of sweetener (a tax break, a public private investment, etc). It’s a ‘quick fix’, injecting money into the economy quickly (perhaps most importantly, within the time frame of a politician’s tenure), but when viewed at a macro scale it’s also very much a temporary one which can be pulled out at almost any time.
Global companies don’t even hide their temporary commitment; in fact, quite the opposite – they are always exploiting this to lobby governments into making changes which favour them, the line is usually “You’re dependent on us now, so you’d better keep things attractive for us (subtext: at the expense of others if necessary), or we walk.”. You see this all the time – the shrinking of the UK games industry because the UK doesn’t have tax breaks like Canada, and here in my local jurisdiction the introduction of a tax regime which shifts the tax burden to ordinary people and away from companies in order to appease the financial services industry. In the end, being so dependent on such fickle and demanding ‘friends’ is not the greatest of strategies. At times, it can almost be a protection racket – “Nice economy you’ve got here, it would be a shame if something happened to it” (see this Monty Python sketch).
Every economy needs a bedrock of locally-driven, independent entrepreneurship, made up of of people who do business in that economy because they want to, or because it’s their home, not because someone bribed them to bring their money here and are constantly looking for the next sweetener. There are countless success stories of businesses that went global from a local, organic base, such as Ben and Jerry’s and Specsavers, and these companies have kept their attachment to their origins. Such businesses are ‘stickier’ and less fickle, and I’m willing to bet they require only a tiny fraction of the overall cost (once you count tax breaks, subsidies, and other policy changes / deals) to attract and retain than an equivalently sized global player. It takes more time to get there, but when it does, it’s far less likely to be going anywhere.
I’m not suggesting that we somehow cling on to protectionism, nor do I deny the benefits of globalisation. What I am saying is that in my experience, the balance of policy making is way off in favour of the global players at the expense of others. Maybe if politicians weren’t so easily impressed by financiers in expensive suits with their short-term promises of wealth injection, and learned instead to see the long-term sustainable potential in that garage-dwelling startup, they’d be better at not skewing the economic landscape towards the ‘floaters’ rather than the ‘stayers’.
It’s actually why I shake my head when I see people claiming that the UK needs tax breaks for games companies, to compete with Canada and other places. Personally, I think that even if you gave a tax break to the companies that are relocating away from the UK because of this, they’d just be asking for something else next year. Where does the bribery end? I think that games companies that only go where the tax breaks are, are probably not worth trying to hold on to. I sincerely hope that the talented people who are sadly left out of a job because of this are able to start up or join independent game businesses of their own, and dare I say are likely to be a damn sight more creative in that environment too. The UK games industry has lost much of its individuality in recent years, and who knows, this process might well regain some of that.
So I guess my main point is that bribing and paying protection money is not a sustainable way to run an economy. Sounds obvious really?