Tel. +44 (0)20 7287 4414
Tel. +44 (0)20 7287 4414
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Our Last, Great, Opportunity


Those fond of disasters unhesitatingly claim that the seeds of the next catastrophe are created in the current one. One can understand the theory. Tulip Mania, the South Sea; Mississippi; Junk Bond and Dot-Com Bubbles are all examples of feverish speculation gone wrong. The problem does not, however, lie solely with get rich quick dreamers and spivs. Since the Roman banking crisis of 33 AD, dodgy bankers, profligate governments and creative ways of debasing currency have caused most crises. If currency were still coin, governments would now be clipping the clippings. Instead, today it is done electronically accompanied by pious claims that Quantitative Easing (AKA Money Printing) is a moral good. Rather, it is a means of protecting the hubristically incompetent from the result of their actions. It does more than protect, bizarrely it rewards the wayward few at the expense of ordinary taxpayers.

So insidious has the 'Quick' money culture become that many look upon their home, not as a dwelling, but a casino chip. A chip that always lands on the winning number. Indeed, our economy has come to resemble a Casino, with the finance industry as croupiers. The government has become the source of a never-ending supply of chips for them to take off the punters. The 2007 financial crisis exposed the failing of banks and regulators; sub prime mortgages were this century's junk bond. Gobbled up by banks, who cast aside sound finance and the golden risk reward ratio, thus exposing their smoke and mirror balance sheets. The problem could have been fixed. It was not, because of a lack of courage and the simple fact that there was no one to blame. All those in charge had created the problem, and without a place to hide it was easier to print money and pat each other's backs.

The pandemic presents a rare opportunity, which although born of tragedy, can alter our future for good. To find the way to the future we need to look back. Not to repeat the mistakes that have bedevilled us since 33 AD, but to search for alternatives that worked – policies that delivered results. Of course, not all crises are caused by human greed and folly. Some are natural disasters. Others are an unfortunate combination. I suggest that considering two of those, offers lessons and hope for our future.

The devastating fires that followed San Francisco's 1906 earthquake, lock seized most banks vaults. It left over 3,000 people dead, and destroyed more than 28,000 buildings. Two years before, Amadeo Peter Giannini had set up the Bank of Italy. Hiding cash under rubbish in a garbage truck he got his small bank's money to safety past mobs of rioters and thugs. Vowing to help rebuild the city, Giannini, quickly put his plans into action. He chartered and financed two ships loaded with lumber from Washington and Oregon mills. These cargos provided the initial reconstruction materials. Then, he opened his bank amongst the rubble, on a plank across two barrels, and set about lending money. His criteria were simple. If he thought he could trust you, he shook your hand. He lent money primarily to small businesses and vowed to help San Francisco rise again. Later, he recalled that all the loans had been repaid. Through shrewd investment and merger, Bank of Italy became Bank of America. San Francisco was fully rebuilt by 1915.

The depressions of the 20s and 30 cannot be ascribed to a natural disaster – although WW1 was a disaster and ended with a natural one – Spanish flu. There was not much breathing space before the dust bowl severely damaged US agriculture. Combatants struggled with seemingly unbearable debt. The bankers and stock exchange 'investors' gambled as if nothing had happened. Indeed, the Federal Reserve, concerned by the widespread belief that the stock market would continue to rise forever, warned about the dangers of speculation on March 25, 1929, and so a terrible series of war, pandemic, weather, greed and stupidly combined in a cataclysm that threatened most of the world for the next ten years. There were exceptions.

In Germany, building and armaments combined to lift the economy from 1933. Self-sufficiency programs and import tariffs meant some rationing. By 1938, there was, essentially, no unemployment. The 'miracle' had been achieved by financial jiggery-pokery only possible in a totalitarian state. The state issued promissory notes (Mefo Bills) to pay for capital projects. When due for payment, the Reichsbank printed money. In 1938, a major repayment of five year Mefos could not be paid, even with a printing press, and so banks were forced to buy government bonds. The Nazis also took money from savings accounts and insurance companies. 

A major exception was the UK. Yes, the UK! Prior to WW1 Britain enjoyed the fruits of globalisation. It was the leading capital exporter, and overseas property income accounting for about 9% of GDP. It produced 27% of the world's manufactured exports, and had a much higher share of trade in GDP (54%) than other leading economies such as Germany (40%) or the United States (10%). The war changed that. The cost in both life and treasure was disastrous and other nations; particularly the USA and Japan were able to replace the UK in many fields. The combination of a huge debt burden, a 25% drop in exports and the decision to return to the gold standards created a perfect economic storm. Deflation caused great deprivation and union militancy increased, despite a program of relatively generous unemployment benefits. The 1920s were marked by depression and failed government interventions.

Most of the world entered the 1930s in a sorry state – a state that continued up to the outbreak of WW2. In Britain it was a different story. After the financial crisis of 1931, economic growth returned stimulated primarily not by rearmament, but by the successful tax and economic policies of the National Government. The man responsible for most of this was Neville Chamberlain, now derided as an appeaser, but lauded then as a saviour. Named, 'Britain's Strong Man' by Time magazine. He rescued the country from the great depression and created an enviable economy with growth averaging 4% a year in real terms between 1934 and 1939. This was achieved by holding interest rates at 2% from mid 1932 to 1939. He cut red tape and encouraging homeownership through a massive house-building boom.

In March 1935 Herbert N. Casson writing in Canada's MacLean's Magazine reported: "The biggest building boom that Britain has ever known is now in full swing. Houses are being built at the rate of a thousand a day". He ascribed the success to the 1930 Housing Act; "That uniquely British Institution" Building Societies, and Private Enterprise. He explained that Lloyd Gorge's Housing Department had created such problems that many skilled craftsmen emigrated. In an observation apposite to those wedded to immigrant labour, he observed: "The private builders sought out those who were left and began to reconstruct their demoralised trade. New workers had to be engaged and trained. The activities of private enterprise had to be re-established. The Government did not at any time encourage or aid the private builders, but it had learned by six years of State control failure to let them alone."

Instead of rewarding the bankers and speculators who had caused problems, Giannini and Chamberlain rewarded the hard-working taxpayer. Suddenly, owning a home was not a dream, but a reality. Ordinary people, artisans and small businesses could look forward with optimism. After his celebrated Budget of 1935, Chamberlain in his radio broadcast: said:

"There is no magic in it. The application of the principles of sound finance has established confidence in industry. Confidence has begotten enterprise and enterprise has increased employment and profits, so that revenue has increased faster than expenditure." By 1934, the economy was running a healthy £31 million surplus, and Chamberlain was able to cut taxes. "We have finished the story of Bleak House," he told the Commons, "And are sitting down this afternoon to the first chapter of Great Expectations."

One way or another, in my view, we have been residing in Bleak House since 1945. Atlee's socialist experiment did untold damage. Tory governments that followed were too timid to really alter the situation, as were those of Labour. Thatcher tamed the unions and introduced much needed reforms. However, again a personal view, the necessary fight against militant socialism blinded her to industrial potential. Big bang deregulation unleashed exciting times in financial markets. It also sowed the seeds of a dog eat dog culture that saw profit and management reward as the only good. The USSR had paid many British trade unions to destroy British Industry. Red Robbo's work was, arguably, completed by the 'investors' that saw asset stripping – in the name of shareholder value- as laudable.

There are similarities between the 1920s and now. A feeling of hopelessness, now not just for working people, but professionals too. A two bedroom flat in a not posh part of London now commands a monthly rent of £3,000. It is common to find four people sharing accommodation. It really is not a grown-up way to live. Apart from those who believe they have discovered financial perpetual motion, there is a broad consensus that something must be done,

The COVID-19 Pandemic is the opportunity to reset the economy and give real hope to all sections of the community. A massive house-building program should be instigated, with the government releasing land as well as encouraging Brownfield development and streamlining planning. Such a program would lead to a natural and necessary fall in property prices. It would also damage bank's balance sheets based as they are on inflated values. Any government support required this time should be based on the most stringent conditions rather than providing free lunches to the perpetrators.

In addition to housing, I believe, we need to re-establish the doctrine of Strategic Industries. It is absurd that we have had to scrabble around for the most basic products. Of course, it's wonderful that so many firms have displayed ingenuity and entrepreneurship. That must be built on to guarantee future national security. It is laughable that a country of our size lacks so many basic industries – telecom equipment, for example. We urgently need a manufacturing renaissance, one that because it starts largely from ground zero could lead the world in the use of technical innovation. I'm a fan of AI and the position our country holds in terms of investment and development. But, lets not fool ourselves. Uber Drivers, Pizza Deliverers on mopeds and people on bicycles delivering meals are all counted as part of the Gig economy. Creating a proper manufacturing base would allow the creation of real jobs.

It is time to be bold. Time to build what's needed, and do away with vanity projects like HS2. We need dreamers to dream big dreams – engineers like Brunel to build them. Here is my dream. As Motorways are state owned, why not build overhead railways down the central reservation? No planning restrictions, no public enquiries, no compulsory purchase or compensation. Imagine a new industry developed as a solution to waste and failure. I can imagine a machine to bore foundations in the central reservation requiring the closure of two lanes a mile at a time. Factory fabricated Gantries and rail beds dropped into the prepared foundations using heavy lift helicopters. Fast comfortable monorail trains running along proven routes of need. Imagine the export potential of such a scheme. Of course there will be experts who say it's impossible, much as heavier than air flight was dismissed weeks before the Wright brothers flew. I'm pretty sure that Stephenson, and Brunel would jump at the chance and we need to rediscover their spirit.

Ours is an old country, it can be reinvented as a new young one. This is a once in a century opportunity to create a better, more secure future. It is time to restore confidence in our ability and give hope to those who deserve a better future. It is time for real political leadership. 

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Director : Robert Oulds
Tel: 020 7287 4414
Chairman: Barry Legg
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Founder President :
The Rt Hon. the Baroness Thatcher of Kesteven LG, OM, FRS 
Vice-President : The Rt Hon. the Lord Lamont of Lerwick,
Chairman: Barry Legg
Director : Robert Oulds MA, FRSA
Washington D.C. Representative : John O'Sullivan CBE
Founder Chairman : Lord Harris of High Cross
Head of Media: Jack Soames