Tuesday, 30 November 2010

Don't Attack The Customers

I’m not one of those writers who worries about digital books, the decline of the local bookshop, or the closure of libraries. We are story-tellers, and there has always been a demand for stories, and an enthusiastic audience for them. How they are delivered – round a campfire, on a printed page, or on an electronic screen – doesn’t make much difference.

What does worry me is that the publishing industry might repeat some of the mistakes of the music business.

In The Bookseller today, Richard Mollet, the chief executive of the Publishers Association, is demanding that the Internet Service Providers should be clamping down on piracy.

This is the wrong route.

With my other hat as a business journalist on I’ve written a lot about the decline of the big music labels. What they got wrong was trying to sue their main customers – the music fans who download music. But a business can’t constantly be treating its customers like criminals. It doesn’t make any sense.

Interestingly, the music business is in pretty good shape. Total spending on music, when you add up CD sales, licensing fees, downloads and live performance earnings, has been going up over the last few years. It’s just the old music labels that have been struggling – largely because they couldn’t figure out to deal with a changed market.

I hope the publishers don’t end up going down the same road.

The story-telling business is in good shape, even if the delivery changes. But attacking our customers is not the right way to respond.

Cyprus Well Profile

There is an interview with me today on the Cyprus Well website. You can read it here.

Britain & The Euro Break-Up

In my Money Week column this week I've been exploring how Britain should handle the potential break-up of the euro. Here's a taster.

It would be easy for the UK to stay smugly on the sidelines as the euro collapses. After all, Britain had to struggle not to join the single currency when it was launched. And it had to put up with years of European politicians warning that the City, and the vast earnings it brings into London, would be finished as result of its government’s stubborn scepticism. You hardly need to be German to think the word schadenfreude might be an apporiate way of desribing many people’s response on this side of the English channel.
That would be temptimg, but wrong. Britain has a huge amount at stake in the euro’s crisis. We are contributing billions to the bail-out of the Irish. The Spanish banks, which could well be the next domino to fall, have a massive presence in this country. The euro-zone is our largest trading partner.
If the euro-zone does break-up – and it looks increasingly likely that it will – then the way that it does so, and the currency system that replaces it, will matter hugely to the UK economy over the next decade. Britain should be leading that debate, And it should be arguing for an orderly break-up, returning to national currencies, but with the euro preserved as a business and financial currency.
The troubles of the euro are getting too severe for even its most enthusiatic proponents to ignore. The Greeks going bust was one thing. The Greeks fiddled their way into the system, and made no attempt to play by the rules. They should never have been allowed in, and, once inside, should have been told to reform fast, or get out again.
But Ireland is something different. It was one of the most suscessful economies in the world before it joined the euro. It did everything that was expected of it, cutting wages, and public spending with a ferocity that no other country has matched. Yet it still ran out of money. With two out of 16 euro countries needing bailing out, it is hard to see how the single currency cannot be blamed. Nor is it going to stop here. Portugal will be next, then Spain, and probably Belgium as well. After that, it is merely a qustion of whether the bond markets take France or Italy down first.
For the UK, that matters hugely. We are on the hook for a large chunk of the Irish bail-out. This county will contribute around eight billion euros to the bail-out package for the Irish government. Royal Bank of Scotland and Lloyds, the two partially state-owned British banks, have billlions in exposure to the Irish economy. If Ireland goes down, it will cost the UK huge sums.
It doesn’t just end there. The Spanish banks – most notably Santander – have a massive presence in the UK. If the Spain is the next euro domino to fall, we may end up regretting allowing a bank from that country to end up owning such a large chunk of the British financial system. Likewise, if Portuguese, or Belgium, or French banks get caught up in the crisis, that will have terrible consequences for our own banks, and for the City more widely.
And, of course, the euro-zone is Britain’s main trading partner. It is no use thinking we can simply be a spectator at this drama. The UK needs to get involved in trying to shape the way it plays out.
Of course, as an outsider the UK may struggle to be listened to. Against that, our foresight in staying out may give us a voice. After all, the architects of the euro, who assured us the single currency would protect Europe from chaos in the markets, are looking fairly foolish right now. And, in addition, Britain is one of the largest economies in Europe. All of that gives us a role to play.
So what should the UK be arguing for?
The first and most important point is that the UK should be pushing for an orderly break-up of the euro. The subject is still taboo in Brussels and Frankfurt. That is crazy. There is a real risk the euro may collapse amid chaos and turmoil. If confidence in Spain goes, it might happen very suddenly, taking France and Italy with it. After all, the exchange rate mechanism, the precursor to the euro, fell apart over the space of a few days in 1992. The euro could do the same. It would be far better if there was a calm and measured debate now about how to unravel it. Sensible decisions are rarely made during a few hours of fevered debate with the global markets in freefall.
There is plenty of talk about creating a northern and southern euro – a neuro and sudo (or the medi, as one Morgan Stanley analysis called it). That would fix some of the problems. The peripheral countries could devalue as a bloc against the stronger economies of core Europe. The two currency zones would be more compatible than the one that exists at the moment.
But will there really be any appetite for another monetary experiment after the failure of the euro? Probably not. Nor is it clear that the two zones would work much better than the one we have right now. France has been losing competitiveness steadily against Germany. It might struggle to stay in the neuro. The sudo would be led by its largest economy, Italy. How much confidence would the markets have in a currency zone led by the Italians? Yup, you guessed right – not very much. Even the Italians probably wouldn’t want to join.
The best solution would be to return to the national currencies. But it would be worth keeping the euro as a parallel currency – which is in fact what the British proposed when the euro was launched. The ECB could be jointly owned by the states of the EU, and the currency would be legal tender in every country. Over time, some of the smaller states might abandon their own currencies and just have the euro. But it would happen naturally, and from the ground up – not from the top down.
That would serve Britain’s interests best. But it isn’t going to happen unless we start arguing for it.

Wednesday, 24 November 2010

A Moment to Celebrate Ourselves

It was National Freelancer’s Day yesterday, although not very surprisingly I missed it. Indeed, I suspect that all the freelancers out there missed it: partly because they are always very, very busy with other stuff; and partly because, by definition, we all work by ourselves, so we aren’t around other freelancers, who might remind us to celebrate.

Still, the Telegraph had an interesting survey to mark the occasion. It found that freelancers were on the whole happier than people who had jobs. Not very surprising, really. If you consider that most jobs consist of some idiot shouting at you all morning, then getting a terrible, over-priced sandwich that tastes like mouldy cardboard, with some bloke you’re only friends with because he happens to sit next to you, and then spending the afternoon in a crushingly dull meeting, it is surprising that us freelancers aren’t even further in the lead.

Its ten years now since I had a job in an office, so I’ve spent a decade now sitting around at home writing stuff. It takes a lot of discipline, of course. You have to get up in the morning and crack on with your work. You need to set yourself targets and deadlines.

And it has it ups and downs. But when you hit a down it is worth remembering that you are a lot happier than you would be in an officer.

In fact next year I might even celebrate National Freelancers Day – possibly with a plate of foie gras and a glass of Bordeaux at my desk.

Wednesday, 17 November 2010

Advice To Budding Thriller Writers.

I’m still really enjoying the round-table discussions hosted over at the International Thriller Writers website. This week, they are discussing the one piece of advice you would give budding thriller writers.

So what would my advice be?

First, learn about structure. Thrillers are very mechanical. They need great engineering. They are a bit like cars in that respect. They can look beautiful, but if they don’t work properly, then what’s the point (unless it’s a Jag, of course, in which case we’ll overlook the fact it doesn’t work).

So the most important thing you need to do is learn about structure and pace and plot. For my money, the best way to do that is to take an early Frederick Forsyth novel, and go through it again and again until you have learned absolutely what he is doing. Then do it for yourself. It’s a bit like taking a BMW apart, then re-assembling. If you do that enough times, you will figure out how to make a car. Same with a thriller.

Next, get with the times. Thrillers are stories of events. They reflect the world around them. So don’t write an old-fashioned Cold War spy thriller. Think about private military corporations (my subject). Or financial conspiracies. Or Iran. Or piracy. But make it something now and fresh we haven’t read about before.

Okay, that’s two pieces of advice – but both valuable.

The Tech Bubble....

In my Money Week column this week, I've been looking at the bubble in tech stocks. Here's a taster.

Right now, everyone in the markets is worrying about bubbles. It might be commodity prices, it might be bonds, it could be gold, or it could be the emerging markets. They are all up strongly in the past year. They all look as if they might have over-reached themselves.
But one distinguishing characteristic of a bubble is that no one really notices it. If everyone is complaining about the price of a particular type of asset, it is probably in perfectly good shape. It is the bubbles you haven’t seen that are likely to catch you out.
What are they? In a replay of 1998 and 1999, it might well be technology. Amazon is trading on a price earnings ratio of almost 70. Apple is now the third biggest company in the world. Google just keeps going up in price. And Facebook, if it ever comes to the market will be valued at billions.
And yet despite the explosive growth of the internet economy, all the old problems remain. Business models are flimsy, the barriers to entry are wafer-thin, and the technology moves so fast, it is hard for investors to make any money.
When the post-credit crunch bull market comes to a screeching halt, as it inevitably will at some point, it well be a technology crash that bring it down.
No one would deny that internet is now a huge business. That was underlined by a report by the Boston Consulting Group published last month. It found that in the UK alone, the online economy was now worth £100 billion a year, and accounted for 7.2% of GDP. If it was a separate economic sector, it would be bigger than construction, transport or the utilities.
Britain is not particularly advanced in its take-up of technology. What is true in this country will be true in every other advanced economy as well. This is a huge and growing chunk of the global economy.
It is absolutely right, therefore, that the companies that dominate the space should be sought after by investors. Anyone looking for long-term growth is going to want to own a slice of the leaders of the technology boom. Otherwise they risk getting left behind.
But hold on. Just because a company has good long-term growth prospects does not mean it is worth absolutely anything.
Take Amazon, for example. It was one of the pioneers of online retailing, and remains the best brand in that industry. I’d be surprised if there was a single reader of this magazine who wasn’t also an Amazon customer. Its latest figures were terrific: sales were ahead by 16% and profits were ahead by 39%. No doubt it will have a great Christmas. Even so, its share price has gone crazy. They have jumped from $25 a share in 2005 to $170 now. It is trading on multiple of 69 historic earnings, and 49 times the forecast earnings for next year.
Or take Apple. Sure, the iPhone is a big hit, and the iPad has been making a lot of noise. In the last five years it has got just about everything right, and there is probably no other business around that has so many devoted customers. Even so, there must be a limit to what it is worth. The shares are up by more than 50% this year alone. With a market cap of $290 billion, it is the second most valuable American business. It is the third most valuable company in the world, after Exxon Mobil and PetroChina. This, remember, is a company which, while it dominates the market for MP3 players, currently has just 4.1% of the mobile phone market, and slightly over 5% of the global market for personal computers. Those are hardly dominant market positions – but you would hardly guess that from its share price.
Much the same could be said of Google, or Facebook, or many smaller technology companies. They are good businesses, in a fast-growing sector of the economy. But they are also hitting crazy prices.
The trouble is, all the old problems with technology and internet companies remain.
For starters, there are still far too few barriers to entry. The days when a few bright Harvard students could start a website that would blow apart the industry, in the way that Mark Zuckerberg did when he started Facebook in 2004, may be over. Then again, they may not be. This is still an industry in its infancy. It is very easy for a few bright people to turn the web upside down with very little money to play with. That is great for them, and it is what makes high-tech so exciting. But is it very worrying for shareholders in the established companies. It is just too easy for a young entrepreneur to come along and blow you away.
Next, there are still relatively few sustainable business models. The online retailers make money, but often only by squeezing their suppliers to the bone. The internet is the most ruthless price comparison device ever invented, and one consequence of that is that margins will always be wafer thin. Businesses like Google may have a great advertising franchise right now – but there is no limit to ad space on the web in the way there is in the physical world. In truth, all online business models remain very flimsy.
Lastly, the technology moves so fast it is very hard for shareholders to make money. The founders and the venture capitalists who back them usually do pretty well. But by the time a company gets to the quoted market, its best days may already be behind it. It may never get to the stage of paying out steady dividends. Even Microsoft only paid its first dividend in 2003. Neither Google or Amazon have ever paid a dividend, nor are they planning to do so. By the time they do, they will probably look as far past their sell-by date as Microsoft does.
In reality, the tech rally looks overdone. It is bound to come shuddering down to earth again some time soon. And when it happens, it may well prove a trigger for a wider market correction.

Friday, 12 November 2010

Why we shouldn't bail-out the banks....

In the Spectator this week, I've been looking at Iceland. The lesson of its experience, I think, is that we probably never needed to bail-out the banks. The piece is here.

Tuesday, 9 November 2010

Why I Write Thrillers...

The International Thriller Writers website has started a series of online round-table discussions about thriller writing – sort of like a conference panel, bit without all the travelling.
I’ll be taking part in a couple of the upcoming discussions. But I think the first in the series looks really good: ‘Why Do You Read/Write Thrillers’.
It’s a fascinating issue for any writer. I mean, obviously I love thrillers. But I don’t only love thrillers. There are loads of different kinds of books I really enjoy, and I would be just as happy to write.
In the discussion, I think Todd Ritter gives the best answer when he says: “Reading a thriller that makes my pulse race takes me briefly into a world of danger and fear and excitement that I won’t experience in real life. It’s an escape and, well, a thrill”.
Still, that is more of an answer to the question of why you read thrillers rather than why you write them.
For me, I think the answer is that the thriller is such a great canvass. They are widescreen stories. They have action, characters, jokes and drama, but they can also take in politics, economics, war, technology, and international relations. They are very outwards looking books, which weave stories out of current events, but which also, at their best, are timeless. Other genres tend to be much smaller scale, rooted in one place or time.
But I guess every thriller writer will have a different answer to the question.

Tuesday, 2 November 2010

Writing ....Fast or Slow

In case you hadn’t noticed, this is National Novel Writing Month. An American initiative, it aims to get people writing a whole novel during November. It doesn’t make much difference in my house, of course. Just about every month is novel writing month for me. But the Independent has an interesting take on it, listing some of the great books that have been written in a few weeks. I’m not sure why they included Sebastian Faulk’s James Bond pastiche ‘Devil May Cry’, because it is a laughably poor book. But it has to be admitted there are some great books there. ‘On The Road’ for example took only three weeks. So did ‘A Study in Scarlet’, and ‘A Christmas Carol’. Even Dostoyevsky managed to knock out ‘The Gambler’ in only 26 days – although he doesn’t strike you as a fast sort of a writer, in the way that Dickens does.

So is it better for writers to rattle out a book fairly quickly? I certainly think there is something to be said for it, particularly when you are writing thrillers. They are by definition pacey books. A sense of speed is one of the things that readers like about them. Like roller-coasters, they need to be designed to go very fast, and have lots of twists and turns. It is easier to create that kind of breathlessness when you are working at high speed yourself.

That said, you don’t want that to turn into sloppiness. The other key element of a thriller is structure. And that takes time to build. There is nothing worse than reading a book that is all over the place, because the writer hasn’t taken enough time to construct the plot, or do the research.

My own solution is to spend ages on the outline – the structure – but then to write pretty quickly. But I’m sure every writer has their own approach.

Monday, 1 November 2010

How To Fix The British Economy...

In my Money Week column this week, I've been looking at how to get the British economy growing again. Here's a taster....

After the cuts, the growth story. Addressing the Confederation of British Industry in Birmingham at the start of the week the Prime Minister David Cameron tried to sound a more optimistic note on the economy. It wasn’t just going to be about slashing benefits, closing down theatres and arts centres, and making everyone work until they are ninety-five. The economy would soon be expanding again.
That is surely right. The U.K. can’t simply cut its way out of a budget deficit of 11% of GDP, the highest in out peace-time history. It needs to start growing again, and at a faster rate than it did in the last decade.
Unless tax revenues rise, and jobs are created to replace those lost in the public sector, the books are never going to be balanced again. Rising unemployment and collapsing firms will mean that tax revenues keep on going down. Very quickly you get into a vicious circle of cutting spending, leading to lower tax receipts, which means even more cuts. Only growth is the way to break out of that.
But how? In fact, there are plenty of good places to start. Cut corporation tax to encourage investment: reform welfare aggressively to increase the labour force: deregulate those industries that are still too protected: and create tax-free zones in those areas of the country where the state has crowded out the private sector.
There is no reason why the economy shouldn’t expand at the same time as the budget deficit is bought under control. Despite the simplistic Keynesianism that seems to have gripped much of the media, it is perfectly possible for economies to expand at the same time that the government is reducing its spending. There are two reasons for that. The government doesn’t create any money itself, it merely takes it from other people, either by taxing them, or by borrowing it from them. So its spending decreases demand as much as it increases it. Next, as government gets smaller, there are more resources for the private sector to exploit. As a general rule, the smaller the state is, the faster an economy can grow,
Indeed, the last time the UK embarked on significant spending cuts – under John Major’s government in the early to mid-1990s – the UK grew at an impressive rate, and plenty of new jobs were created. Two million jobs were created under the Major government of 1992-1997, which more than made up for the 700,000 jobs that were cut out of the public sector. Under Mrs Thatcher’s Tory government of the 1980s, the experience was similar: after the peak of the recession or the early 1980s, 2.97 million new jobs were created by 1990, which more than made up for the two million lost in manufacturing. There is no reason to suppose the UK can’t repeat that experience in the coming decade.
But it isn’t going to happen by magic.
You can expect to hear a lot of waffle from the government about boosting infrastructure spending, encouraging more lending to small business, promoting investment in green technologies, and cracking down on short-termism in the City. Most of it is nonsense. The Government has no idea which ‘green technologies’ will work in the future, and whether this country has any real competitive advantage in any of them. People have been fretting about the short-termism of the financial markets since Victorian times without ever finding a realistic way of doing anything about it. Nor does the government have any idea whether the banks should be lending more to small businesses, and if so, which ones.
In fact, the steps the government should take to get growth going again are far simpler. Here are four good places to start.
One, cut corporation tax. In Ireland, a 12.5% corporate tax rate made the country a magnet for investment from all around the world. It could do the same for the UK. Over the coming few years, dozens of ambitious new companies are going to be emerging out of the fast-growing economies of Brazil, China, India and Russia. Just as the Japanese did a generation ago, they will be looking for a base to expand into Europe. Britain should be the natural destination for them, as it was for the Japanese. But it won’t happen unless there is plenty of incentive for them to come here – and a low tax rates trumps just about everything else.
Two, reform welfare aggressively. The huge numbers of Polish immigrants who came to this country and found work in the last decade tells us the UK can easily create jobs for people that want them. There is no easier way of boosting growth than increasing the employment rate; GDP, remember, is just output per worker, multiplied by the numbers of workers. If you can move some of the roughly five million people now living in benefits into jobs, you not only save on their welfare cheques, you also boost the economy. That is what reforming welfare can achieve.
Three, deregulate protected parts of the economy. The Thatcher government of the 1980s freed up the economy to generate growth – mostly notably through privatisations.. This government should do the same. The most obvious candidate is land and building. It's virtually impossible to build anything, particularly in the South-East, which is one reason we have, for example, a relatively small tourist industry Make it easier to get permission for new buildings, and the jobs will follow.
Finally, create tax-free zones. Big parts of the UK - Wales, the North-East,
Northern Ireland - have reached Soviet levels of state dependency. The public
sector has crowded out any kind of private economy. Nothing can grow when the
state accounts for 60% or more of GDP. But just slashing state spending won't
work by itself. Instead, create virtually tax-free zones to encourage the
private sector to move into those areas as spending is cut.
Growth is not about picking winners, or choosing which sectors of the economy to promote. No one really has any idea, and least of all the government. But if it frees up space for entrepreneurs, the economy will respond – it has in the past, and it will do so again.