Blain’s Morning Porridge Feb 16th 2024: Broken Britain. Recession. And how to get Broadband fixed.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.”

The UK is in “technical” recession. Broken Britain is the depressing reality. The bleak outlook will have profound and long-term consequence, unless we act fast to figure out how to fix the way the economy works. The key is better management.

It’s Friday thus I am contractually allowed to rant about the sheer bloody awfulness of the world we live in. I find myself idly wondering if the best way to ensure strong growth in the UK might be for Prime Minister Rishi Sunak to declare a “technical recession” as one of his key goals for the economy…? At last, a deliverable we’re happy he misses! Aw, bless… he’s trying his best…

We have prime ministers because we need a figurehead to praise when it goes right, and someone to blame when it goes so badly wrong. Sunak will be that man. Pleasant enough fellow he might be… but the UK’s problems are far deeper than one out-of-his-depth well-meaning but straight-line thinking prime minister. (And we can’t blame it on his team of ministers – pretty much every Tory who can count past 10 without taking off his/her shoes has been given the opportunity to fail as a minster over the past 14 years – to no avail.)

The core issue is the Politics shouldn’t really matter. (After all, the core ambition of Sir Keir Starmer’s Labour Party now seems to be to look like a slightly nicer version of the Tories…)

Strip out the politics, and Political Competency is about how effectively government policy and services are enacted and delivered. The strength of the economy is about how well government agencies and corporates innovate, deliver goods and services, and the growth that creates jobs. There is only so much Governments can achieve – much of it in setting the tone for the economy, and conditions for it to thrive.

I am pretty sure the real issues at the core of why Britain is so broken are buried deep in the actual details of delivery of goods and service – within government and commerce. That means examining how services and companies are managed. But we also need to consider the forces that cause companies and governments to act the way they do.

I have to be careful here; much of my day job is spent talking to Private Equity and Private Debt investors, and they are generally good people. However, the Private Capital firms are driven to maximise returns. The seek to achieve the highest returns from the least inputs. And that’s doesn’t necessarily mix with making customers happy, or growing the economy. When so much of the UK’s service infrastructure like water and energy are effectively return engines for PE there is a clear misalignment in objectives.

Meanwhile investors are walking away from ESG – pulling billions out of ethical and environment funds, while the mega-firms are turning away from Mark Carney’s Green Alliance, concerned at push back from the Right and Republicans in the US. I can understand why – ESG has become a bit of an industry in its own right and there is much bollchocks around it… despite the fact climate change is increasingly real.

Personally, I believe one thing counts. A well governed firm will be acutely aware of the environment and will understand its’ social responsibilities. Well governed firms will aim to do the right thing for both its shareholders and stakeholders. Public companies care about stakeholders (or they should). Private Capital firms care about returns. Where companies and services break down is where the lofty ambitions of the board fail to percolate down the corporate structure.

That is bad management and bad governance – and these lie at the core of Broken Britain.

So much to the surprise of readers who might have thought this would be another Blain rant at politics, it’s not… this is a rant about bad management, accountability, responsibility, and why making both stake-holders and stock-holders happy will make companies and services more sustainable, while driving growth. (Am I still allowed to say sustainable in these confusing days?)

Yesterday I found myself at the receiving end of two examples of broken Britain.

• I had a hospital appointment – the email said it was at a hospital, but a text message said it was at another. I tried to call to resolve the confusion. It was a nightmare. Multiple terminal death holds, transferred from dept to dept. At one point, because I said my name was Bill, no appointment existed: although I’d given my DoB and my NHS number, there was an appointment for a William, but not a Bill. Another receptionist admitted confusion on venues seemed to happen a lot. Eventually I found out where I was supposed to go.
• And then a team from Virgin Media turned up to fix our cable connection. They had a look, shook their heads and concluded they couldn’t do it – despite the fact an engineer had visited a month ago to carefully spec the job of burying the cable under the drive. This was the 4^th time a team turned up and didn’t do the job. I asked if they were “f***ing kidding”, but the big burly bearded contractor said I was being aggressive, jumped in his van and sped off. I called Virgin. I gave up. I tweeted about Virgin and got a response. Another team came and did a make-shift repair.

I reckon I squandered 3-4 hours trying to sort these comparatively simple communication problems. A similar amount of time would have been wasted by Virgin and the NHS. Let me be clear – the guys who came and fixed my broadband, Mike and James from Virgin were fantastically helpful. The Nurses at Fareham Community Hospital, Rachel and Lois, were wonderful. But both work for essentially broken systems.

This morning’s Top of the Porridge quote is from Adam Smith, from whom all economic wisdom flows. He neatly encompasses how any economy should work. At its simplest level artisans and businesses seek to get paid – so they work hard to provide the products that earns them cash. They don’t provide us with food that we might eat. They sell us food so they may get wealthy. The system works because if you don’t provide the service, you don’t get paid. Simple as.

As businesses grow the provision of these services becomes increasingly complex. The larger a business the greater management skills are required to ensure these services are effectively delivered. Ultimately the delivery of goods and service boils down to accountability and responsibility of managers – who are paid to manage.

Somewhere…. The connection between management and delivery has broken down – both private business and within the NHS. These are the issues to be fixed.

Let’s consider Virgin. The delivery of goods and services is competitive and costly. It is therefore inevitable the smaller and less valuable a service is, the greater is the incentive for a company supplying it to cut the costs of delivering it to improve the marginal return per customer. But, the cheaper a service is the more costly the marginal cost of fixing it per customer becomes. Additionally, VirginMedia is effectively a monopoly supplier.

At some stage, we could get to the Douglas Adams economy: where the richest companies in the universe are the ones who have successfully got rid of all their customers, and therefore don’t require staff, offices or other ancillaries, and can focus entirely on paying their board.

Broadband is a classic example. Assume I pay £50 per month to Virgin Media for broadband. They will seek to keep the marginal cost of servicing me as low as possible by automating as much as possible. They cut costs; the first being to replace call handlers with “we are experiencing a high volume of calls” answerphone messages, and attempting to direct customers to the internet. The internet page is not designed to help, but to frustrate your attempts to find a solution in the hope: a) the problem will solve itself, and b) you will continue to be put off solving it. Eventually companies only solve problems when they become a threat. As I discovered y’day, the only way to get service from Virgin is to Tweet how crap @Virginmedia they are.

Virgin and other call-centre customer-service driven firms increasingly rely on automated tech, and soon AI, to manage and deliver services. Like autonomous cars will simply never be able to handle the chaotic reality that is traffic, the multiple unexpected problems any service may create, or the complexity of sending a patient to a medical facility with capacity to test them, are issues the human brain is superbly good at being empathic with and solving. Go figure.

I reckon higher personal costs will be far less than the long-term costs of bad tech. Happy customers vs unhappy ones? Maybe someone will have the light-bulb moment and figure the most profitable companies will be the ones that actually treat humans as humans, pick up the phone, and use IT and AI to solve the problem. Wow… I think I’ve just solved the problems of the modern economy.. And the more customers a call-centre operative helps, the more they get paid?

Radical eh? Paying staff more to make customers happy so they buy more, and the economy grows? It will never catch on…..

Out of time and have a great weekend!

Bill Blain

Market Strategist and Author of the Morning Porridge