„The underlying problem is that UK banks are not lending at a pace consistent with rapid recovery. Moreover, while they are under pressure to re-capitalise and simultaneously face the threat of major losses within the eurozone, they are not going to start investing in British industry at the necessary rate. The quickest solution would be to establish an industry bank and to finance it by allocating £10 billion from the £75 billion recently added to the money supply by the Bank of England.
Germany has found its highly decentralised development bank, KfW, crucial to ending its recession. When private bank lending fell during the recession, KfW lent record sums: €30bn in 2010 alone, creating 66,000 jobs.
America’s Small Business Administration (SBA) also increased funding during the recession. America defines any company with fewer than 500 employees as small, which covers over 29 million small businesses in the US (99 per cent of companies), employing over half of the American workforce. Since the Second World War the SBA has supplied 20 million small businesses with financial help by supporting them when commercial banks would not. It does not makes loans direct, but guarantees private loans against default, a subsidy that vastly increases the availability of private finance. At present, the SBA has roughly 219,000 loans worth around $45 billion, making it the largest investor in US businesses.
The creation of real wealth depends on better productivity, which means using our brains to work out better ways of producing more for every hour worked. That’s where manufacturing fits in. Contrary to the arguments of some critics, we need to re-industrialise not because of a romantic attachment to making things but because manufacturing provides better opportunities for productivity gains than services. A hairdresser can only do so many haircuts per day, whereas in recent years mechanisation has multiplied many times over the number of cars that can be made for every worker employed. The nations that expanded their GDP rapidly in the post-war years, all based their strategy on manufacturing, including Germany, Japan, Taiwan, Korea and today China. They knew what they were doing. Services play a vital part in any economy, but they do not provide the same scope for rapid increases in productivity.”