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Tuesday, 21 July 2009

If only life was as simple as a computer game

Many years ago, when I was a few years out of university zand learning to be a banker, I worked for an American bank who were renowned for their training. Part of their credit training involved a computer based game, which I believe was also played at many leading business schools. Because this was a long time ago, when computers were less ubiquitous, each team would provide a series of numbers to the gamemaster, determining how their company would operate in the next period, giving budgets for manpower, advertising productive capacity and a vast number of details. The inputs for each team would typed into the computer, no doubt by a hidden pipe-smoking technician in a brown coat, and after much whirring of tape machines and flashing of light bulbs, the results would be printed on what was quaintly termed a "line printer" and several hours later returned to the teams to plan the next round.

The whole purpose of the exercise was not really to understand how to run a company so much as to understand how easily things can get out of hand. Ambitious young people trying to win the game would pursue aggressive strategies, and rapidly lose control, having geared up and spent a fortune on advertising and failed to build production capacity, or spent heavily on production capacity and advertising but skimped on wages and failed to meet demand because of a lack of staff. The two lessons that I learnt were first that *everything* is important and nothing should be taken for granted and second that you never know what life is going to thow at you so never think you have all the answers.

I am often reminded of this game when I look at the performance of the government and the economic position of the UK. Yesterday we heard that total outstanding government debt in the UK has risen to 56.6% of UK GDP or £799 billion, which is higher than last month's record and thus the highest it has ever been.

But just when you think that we need to have more tax receipts to service and eventually repay this debt we hear the other shocker, that tax receipts are down 10%, so we have less cash to service the debt. Bear in mind that government spending is still rising (paid for by borrowed money), paying more salaries and NI and putting more cash in the hands of public sector wrkers who will buy things and pay VAT and duties, so for the overall tax take to fall 10%, things must be really bad in the rest of the economy. Like in the North Sea, where BP, the largst producer, says it will be producing 10% less oil in the UK sector than last year.

And that is where this government has gone wrong: by assuming that the private sector (with which very few ministers had any dealings with before their current jobs) would continue to operate as before despite increased taxes, regulations and other costs and in the face of increasing competition from overseas, the government has made the same mistake as the young bankers and their business game. We have some of the highest paid family doctors in the world, lavish salaries for civil servants, and an extravagant schools building programme, yet we have no way of paying our way and our debts are spiralling out of control because the private sector is dying on its feet while nobody wants to invest here.

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