At the start of the EU referendum I highlighted the need for some useful information and, as the campaigns have got into full swing, information has indeed been forthcoming. But there are different types of information and it’s commonly agreed that hard data is the best on which to base decisions. Figures are usually seen as hard data so we’ve been given some: I suspect that £350m per week will stay with us as a fact long after the referendum. But, as an FD, I’m more interested in what the figures mean than their absolute value. £350m is a large figure. But so is £3,500 if you only have £3,400. Net migration is 336,000 at the last count, which would fill Wembley stadium nearly 4 times, the common measure for making people measures understood. But would these people actually come along to sit in Wembley, and wait for the other three to leave before they sat down?
Figures are only sensible when they relate to something else. When IBM lost $1bn in a quarter, it was presented as bad news. But I couldn’t help thinking what it must be like to be big enough to be able to do that. We are big enough to deal with both these figures: £350m is 0.5% of GDP (the net expenditure of £6bn p.a. is 0.8% of Government expenditure); and 330,000 is 0.5% of the population.
So what now?
Maybe it would be better if we acknowledged that our need for facts is part of our need for safety/certainty, the second most pressing need according to Maslow’s hierarchy, and that we are overdoing it? I think that the need for safety has driven advanced societies to their creation of debt, especially in the noughties and most notably in house buying, which now hangs around our governments’ necks.
Such things were frequently referred to at last week’s Hay Festival. I heard about social contracts and debt contracts but little mention of equity – the bit that’s left over when the certainties, such as debt interest and re-payment, have been dealt with. Sometimes equity suffers a loss and sometimes it enjoys a profit. As a business owner and equity investor I have got used to the ups and downs of my wealth. My quoted funds have gone down almost as many times as they have gone up. But, and it really is a big but, the ups have significantly outweighed the downs. The performance of the equity value of these businesses has involved shortfalls in profits and market fluctuations but overall the skill of the people in the organisation and how they are managed has brought an increase in wealth, of which I hold a share.
The EU debate can be seen similarly to those debates that are held among managers considering a management buy-out: would we prosper better as part of a group or as a buy-out. Buy-outs can transform businesses but most don’t stay independent for long, burdened as they are by debt. Government borrowing is around 90% of GDP, a debt that we can only service because of the low interest rates we are able to secure. I wonder how long we would stay independent because the one thing that seems certain to me is that interest rates will rise if we leave.
Maybe the Brexiteers realise this and their placards are not one but two exhortations:
Or maybe higher interest rates will be a good thing, giving savers a better return and lowering house prices for the young? As Douglas Adams observed: reducing the answer to a number – 42 – is fine but what’s the question?