Innovation

Is Industrial Innovation the road to new growth?

An influential economist from Sussex University, Professor Mariana Mazzucato, has been arguing in the press, and at a variety of public meetings and seminars, that state led investment in innovation is the way out of the current economic recession.

Her basic argument is that the state takes the greatest risk when investing in new products and services. This is because so many investments fail; and because private firms are less willing to engage in basic research, as opposed t applied research. Applied research is less risky because it improves existing products, with a proven sales history. Governments in Brazil and Finland have got a good return on their investments from successful firms like Nokia.

She identifies a number of “risk-takers” who involved in the complex business of innovation. Firstly, there are the governments, and secondly private firms; their owners, managers, and workers. Thirdly there are academic scientists and research organisations, and even “user-producer” interactions, or market researchers. Fourthly, there are the share-holders in these private innovate firms.
All these risk takers should be entitled to a return on their money, time, skills, and efforts. But only some are. Some governments get a return; some do not. Owners/managers get a return, but workers may not. Academics may or may not get a return; similarly share-holders. All this is well trodden ground.

What is new is the focus on individual workers. They give their time and skills. They may also be involved in changes and improvements in implementing the production of new products and services. This last point is not made by the professor. Nor is there any discussion of how workers might be rewarded for successes; or even penalised for failures. There could be estimates of how successful new products might be; how much new profit there might be; what percentage or fraction of the increased profits might go to workers. This is not so difficult as firms are very used to doing this task for their share-holders.

The professor is rather more interested in persuading governments to invest in hard times; than in the distribution of new profits throughout society.
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Barclays Bonuses: The Silence Broken.

Barclays Bonuses: The Strange Silence is broken.

Up until last week there seemed to be little or no reaction to the £17 million package pay package of Bob Diamond. Further there was very little comment on the “tax equalisation” payment to him of £5.7 million to cover his tax bill!

Now a number of big investors in Barclays , including Standard Life Aviva and Scottish Widows, have considered voting against the remuneration committee on April 27th. These investors only account for over 6% of the total share register. But their influence is greater than this figure suggests. There may well be a wider share holders revolt. Should the size of revolt rise to over 10% , then the bank might have reconsider its pay package.

The “tax equalisation” payment has caused particular anger. Barclays have argued that this payment should not be directly counted as remuneration. Further, it was argued that it was created to deal with Bob Diamond’s move from America to London. So, it is not remuneration; then what is it? It is a payment by the bank to Her Majesty’s Revenue and Customs to cover Mr Diamond’s income tax. So, what should it be called?

This is an intriguing problem, which Barclays has not answered so far. Also, it raises the question as to whether other large employers here or in America routinely pay their employees tax bill. All that is fairly clear is that one should not add these two figures together to get a total package of £22.7 million. Is this some evidence that the bank does recognise that £22 million is not justifiable, but £17 is?

I suppose that the “tax equalisation” monies could never be called, a payment of our employee’s tax liability?

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