Entrepreneurs should be encouraged to make their fortunes – before they decide to leave the UK. That’s the view of Professor George Feiger, of Aston Business School. Steve Dyson reports.
There’s an unnatural hostility in the UK towards individuals who make lots of money, according to Professor George Feiger. And if this resentment is not dealt with, he feels the country will lose “bright sparks” to places like America, where they can feel more comfortable with their wealth.
The Professor, who is pro vice-chancellor and executive dean at Aston Business School, touches on these views in a breakfast presentation to top bankers, and I catch up with him afterwards to find out exactly what he means. An American by birth, he explains what he’s noticed as an “unhealthy envy” since settling in the UK.
“People with wealth are demonised, without any consideration of how they got it,” Prof Feiger says. “Let’s compare a thief with an entrepreneur: both have lots of money, but one’s got it by being a criminal, whereas the other has got it through hard work. The thief should be punished, but why punish the entrepreneur?
“OK, there may well be deserved hostility towards certain people in the finance industry, but is your average manufacturer in the West Midlands ripping people off?
“Look, the country’s been through austerity, but you’ve got to ask: how did we get here? It was because the government spent money it didn’t have. We should have built up surpluses in the good times so we could afford deficits in the bad times – that’s basic economics. Times are tough, but why? It was the government’s gross mismanagement.
“Now they’re saying to industry: ‘We don’t invest enough.’ But who are they asking to invest? The same people they’re planning to strip of their assets through tax! This envy is ugly and unproductive… I blame Labour for what we’ve created. Their assumption is that if someone has some money they must have got it in the wrong way, so let’s tax them disproportionately. This rhetoric obfuscates the issues.
“Entrepreneurs are not philanthropists, they want to succeed. Their success is measured by their income, their wealth – which then results in productivity and employment. And if they’re not making money through crime, why should we take it off them?”
Prof Feiger’s talking about all forms of taxation – income tax, corporation tax and capital gains tax – and insists that he’s not suggesting that no tax is paid. But he feels that when fiscal levies are discussed it always seems to be on a basis of near-punishment for those who have the audacity to be multi-millionaires.
“Take your namesake – James Dyson,” he says. “What is it that’s wrong with him making whatever amount of money vacuums are making? He’s done a lot for the world. Is he rich? That sounds pretty good to me. What’s wrong with that?
“In the USA, no-one thinks it’s a crime. And it’s not just tax levels we’re talking about – because they can vary from state to state – but it’s the whole cultural attitude, and the UK’s acceptance of ‘taxing the rich’.
“There’s nothing wrong with saying: ‘I want to get rich by starting a business’, but it seems that people are made to feel bad about it in the UK. I had a bunch of my students in my office talking about this, about how they desperately want to succeed by building businesses and stuff like that. But one of them said: ‘You don’t get respected around here. If only I could, I’d go to California tomorrow.’”
Prof Feiger’s views are based on a career of working with money. Before joining Aston Business School, he was chief executive of a $3.4bn wealth management company in the United States.
He’s also served as head of strategic planning at the Bank of America’s world banking division, as a senior partner at McKinsey, as global head of investment banking for SBC Warburg, and as global head of onshore private banking at UBS.
It’s this wide and detailed background that the professor applies to his analysis of what he calls “an increasingly unbalanced global economy” during his presentation at Equistone’s annual breakfast in Birmingham.
He sets the scene for his audience, mainly the region’s top bankers: “Over the last decade, we went from a period when pretty much everywhere was booming, to a developed country slump with emerging market countries, particularly China, motoring ahead, to a situation today with a much more fractured and nuanced structure.
“The US is expanding at a slowly accelerating rate. However it consists of a series of islands, surrounded by a sluggish sea. The islands are the tech industry in its broadest sense, the energy industry in a belt that runs from the Gulf Coast up to the Canadian border, and a still immensely productive agricultural sector.
The island metaphor explains the coexistence of quite good aggregate growth and stagnant real incomes for most people.
“China is slowing down. This is bad news for the exporters of iron ore and coal but not for consumer-related industries. Breakneck Chinese growth was based on massive investment, driving the share of consumption in the Chinese economy to below 40% of GNP. This is both unsustainable and unwise.
“The Chinese government is trying to rebalance the economy towards consumption and there is so much room that a significantly slower aggregate growth rate is compatible with rapidly rising living standards. That’s good news for a different group of investors and suppliers.
“The Eurozone is stagnant and remains imperilled, seven years after the crisis began. The structure was flawed from the first. One monetary policy is not compatible with multiple fiscal policies. The monetary policy is, in any event, subject to multiple effective vetoes.
The inflexible structure of many of the Eurozone economies meant that they could not rapidly adjust from rebalancing via currency devaluation to rebalancing via changes in internal matters like nominal wages and deregulation.
“The governance structures of the Eurozone put too much power in the hands of unelected bureaucrats and government nominees so that actions lack popular mandates. This is especially important when difficult decisions need to be taken.
“In my view, the only viable way forward is for Germany and its associated economies to withdraw from the Euro, revalue and re-enter at the higher value. This effective devaluation of the other currencies would buy time for a more fundamental restructuring of the type the Germans want.”
Prof Feiger admitted, however, that such a Euro withdrawal is very unlikely. Despite the unbalanced economy, Prof Feiger warns that “history always trumps economics”, and says how it always surprises him how often governments and bankers forget to remember this rule, instead struggling on with faith-based policies.
“Notwithstanding the jaunty air of confidence affected by the heads of Central Banks, and the close attention with which their every word and gesture is followed by the financial press, these people have only a limited ability to understand, let alone to stabilise, the global economy.
“The global financial system is linked in ways that have not been mapped. Hence we, and our regulators, are constantly surprised by events. How else to explain that the failure of an obscure US money market fund to pay back 100 cents on the dollar to its domestic investors after the failure of Lehman was a major cause of the credit contraction in the Eurozone and the depth of the recession?
“All economic actions – investment, major consumption, capital flows – are based on anticipations. Euphoria causes self-reinforcing bubbles, and fear stifles investment, as in Japan for years. We have no good explanation of how expectations form and spread. Therefore we have no good tools for the fine-tuning of economies.
“Of course we do know that debt is the great amplifier of all macroeconomic swings. This presents current quandaries. For example, we know that ‘austerity’ has not worked well in the Eurozone. Will turning back on the credit taps for already indebted governments make things better or worse?”
Despite his views on the global economy, Prof Feiger tells his audience there’s still good news for UK entrepreneurs, especially in the West Midlands.
“The UK is the only European nation which approaches the US in this respect. In particular, tech-related and export-related entrepreneurialism is significantly higher in the UK than in continental Europe. And England is the most entrepreneurial part of the UK – Scotland being the least.”
Within England, the West Midlands is one of the best places to be for entrepreneurs, Prof Feiger says, but he warns that funding is still much harder to get than in, for example, San Francisco, as is “effective mentoring of people with good ideas”.
And on the point this feature begins with, Prof Feiger argues that we must understand, welcome and promote entrepreneurs’ desire to get rich.
He adds: “The ongoing negative representation [in media and politics] of successful leaders of business making lots of money is alienating our student entrepreneurs. They want to succeed, they want to earn a lot of money and they want to build big businesses. They don’t want to be in a society that seems not to value these aspirations.”
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