High youth
unemployment has been exacerbated by three key trends, changing population dynamics,
unsustainable fiscal policy and higher education misalignment.
From the graph
below we see those in the previous generation have lived in a generational
pyramid passing debt to the age group below to enable above average growth
expectations for the last 40 years.
This system has
now broken for those aged below 30. Growth through debt is not a solution for
long term sustainable value.
Increasingly older
members of society live longer and realise they have not saved enough for
prolonged retirement they are in competition for jobs with the younger
generation by not retiring. We can see this trend in US statistics where
unemployment is falling much faster for those aged 50 and above.
These demographic
factors combined with unsustainable fiscal and monetary policy have meant that capital
is not passing through to a new generation of economic activity as fast as it
once did. Contributing to this is an unsustainable company tax regime that
benefits companies with debt by enabling loans to offset tax and transfer
pricing (the practice of moving corporate profits to lower tax regimes) to
lower government tax receipts forcing reductions in spending on education
amongst other public services.
Lastly, the
educational system has been accepted as a means to an ends not providing
students with the risk taking mentality required to innovate, test and market
new ideas in any industry. Learning through failure, indeed failure itself, was
seemingly watered down to enable large numbers to “pass through” the system.
The profound mismatch between the educational model and the more
entrepreneurial job market of the 21st century is resulting in a
slow down in innovation and therefore a reduction in jobs at all levels of
education.
In order to
reverse these trends we need to “productionise” the “value of striving” and
build the case for innovation. Every business needs innovation and this needs
energy, new ideas and direction. Continuous failure leads to innovation and I
propose we build innovation spaces though out towns and cities in this country.
These large scale warehouses will
provide workshop machinery and donated software and hardware from large scale
companies to enable anyone in the population to validate their ideas and take
them from concept to design and prototype construction. Building and assisting
development will give young men and women confidence to develop new skills not
only science and engineering but also marketing, intellectual property and
branding. Life skills like mental arithmetic, prioritising, and delivering task
orientated results can be learned through these schemes. Lectures from serial
entrepreneurs like James Dyson have long talked about the need to generate
interest in learning to succeed by prototyping. Google and Apple will welcome
the adoption of their collaborative design culture and want to look for
students in these centres for the next generation of talent. With NEETs costing
the UK economy £56,000 each we can afford to invest government and private
funds in this endeavour. Any inventions brought to market in these innovation
spaces will have a portion owned by the businesses that donate as well as the
government. Like all private equity funding there will be many failures but
there will also some truly spectacular successes. Take the simple example of the digital camera.
The core component of cameras today, the CCD, was created by a young student
given a menial side project at Kodak. Although it was not capitalised upon by
the company it spawned an entire industry. We need to give people access to the
tools required to turn ideas into reality. This can truly generate sustainable
innovation as word spreads of success and previous inventors used their success
to feed investment back into the scheme. Youtube have recently created a
similar concept for movie creation. By building state of the art studios and
enabling anyone to use them they are looking for the next Spielberg to capture
the imagination of the world. They cannot do better than provide the canvas and
the paintbrush and wait for the Picasso. It has become an all too common sight
for young graduates to undertake service industry degrees, which generate
little economic value. This is doing a disservice to our young men and women
who should be taught that ideas executed well can give them a real sense of
purpose as well as helping their country back to growth.
Although it can
be argued that government has little role in shaping innovation we can see that
the private sector is hoarding capital as it has been driven to reduce risk at
all cost by developing an outsourcing model which only seeks to generate
greater return through reduced employee costs and regulation arbitrage rather
than fostering true innovation. Very few
R&D tax credits are actually used to facilitate true research and
development, the HMRC definition is so broad that tax accountants have been
using these tax breaks to grow profits rather than let companies invest in the
future. It is only government that can endure to see the profit in long term
skills growth. It can use fiscal policy to enable companies to pool their
resources into innovation spaces, into real projects, that have a high chance
of return with pooled risk. At the moment the retrenchment in the economy means
that this money is simply going to share buy backs as companies cannot find a
place to generate high returns for shareholders.
In summary a three
pronged approach. Create innovation centres through government and private
sector investment that can bring a sense of design and creation to the youth of
today. Use fiscal policy to force
private capital to invest in ideas of the future with government taking on some
of the risk and reward. Lastly, develop higher education policy that is linked
to the economic needs of the country. These elements will increase the velocity
of money from one generation to the next.
We are going to have
to make money the old fashioned way – creating what people want.
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