Jon Moynihan is a businessman and venture capitalist who started his career advising companies and banks in the Netherlands, the US and the UK as a specialist in mergers and turnarounds. He then ran the global firm PA Consulting Group for 21 years. He subsequently transitioned into venture startups, creating over 20 companies to date, most of them in the science and technology fields. Jon has worked as a volunteer in the charity sector all his life, including in Bangladeshi refugee camps and other developing countries, in educational think tanks, both managing and fundraising for charities, more recently in the arts sector where, among other activities, he was president of the Royal Albert Hall for a number of years. Jon sits in the House of Lords as Baron Moynihan of Chelsea.
In this interview, I speak to Baron Jon Moynihan on his new book, Return to Growth Volume One: How to Fix the Economy. We discuss the UK’s decades-long stagnant economy and looks at what can be done to resuscitate it. In our conversation, we explore the key dynamics affecting economic growth, ranging from government borrowing, expenditure, tax and regulation to the way national resources are deployed on non-productive and futile, growth-stifling endeavours.
Q: Is the desire for growth baked into us?
[Lord Jon Moynihan]: … one could go back to the work of people like Richard Dawkins in *The Selfish Gene*, where he talks about how the gene pool of any species tries to crowd out other species and will fight to replicate itself. And if that gene didn’t have that characteristic, then it wouldn’t get very far under natural selection.
Until you made your point there, Vikas, I hadn’t thought of it that way. I suppose you could start there, but also look at human beings and different tribes, movements around the world—they go after each other and seek dominance over one another. And however much we would like to pursue a “be kind” policy, we have to recognize that there are others in the world who are going to eat our lunch if we don’t do our best.
So it’s definitely baked into our nature to be striving, to want to achieve. But it’s also, I would argue, a really good thing, in that one of the things I think about in growth is that around the world you’ve got somewhere between 1 and 2 billion people who are living in abject poverty. And that is a much lower number than was the case 20 years ago because around the world there has been a lot of economic growth.
But still, 1 or 2 billion living in abject poverty, having horrible lives, having poor nutrition, having their IQ stunted, having their growth stunted, having their life expectancy stunted, and economic growth for them—for the countries they live in—is absolutely crucial. And economic growth offers the opportunity to reduce that 1 or 2 billion to 100,000–200,000 in the next phase.
Q: Why do we need to pursue growth?
[Lord Jon Moynihan]: There are so many aspects to growth. As you say, every politician under the sun says it’s their number one priority, but they don’t really say what they mean. And we’ve talked about redistributionism and how if you don’t grow, then the only way for somebody to get more is for somebody else to have less, which is a pretty dog-eat-dog world. They say a rising tide lifts all boats, and so economic growth gives the opportunity for everybody to be richer.
But also, again, going back in terms of humanity, you start looking at what the individual characteristics of economic growth were. I think the reason why humanity suddenly, a couple of hundred years ago, shifted from general immiseration and very low wages and short life expectations to what we’ve got now—an enormous transformation in the way people in the world live—that was mostly the Enlightenment, the Scientific Revolution, the Industrial Revolution.
The Industrial Revolution started with water power—Arkwright spun cloth through a water frame. But then they discovered hydrocarbons, and growth really took off with the steam engine, steam power, and then they discovered electricity. All of those are the major ways in which we grew.
But think of another aspect of growth and what is meant by economic growth. About 112 billion human beings have lived in the lifetime of humanity, and about 8 billion of those are still alive and the rest are dead—about 104 billion. About 80 billion of the dead ones died of infection over humanity’s lifetime, and the average lifespan of those people was 30.
Now, you can imagine to yourself, and I can imagine to myself, what it would be like if they knew that their expectation was only to live until age 30. I mean, I wouldn’t be here talking! I’d be long dead. But think of all the self-actualization, the dreams, the aspiration, the success, fulfillment, the family, the grandchildren—all those things that you never ever saw. And that was the case until about 1920 or whenever it was that Alexander Fleming came along and figured out how to cultivate penicillin.
And economic growth took place from that, inasmuch as the capitalist system swung into action and they developed all sorts of other antibiotics. They discovered how to push it around the world and how to increase lifespans all around the world through basically antibiotics. Now, the average lifespan in the developed world is—if you get through childhood—you can expect to live to 93. And on average, lifespan is 83, up from 30 just in the last century.
Now think about if we say now that we’re not going to have economic growth. What we will die from now is inflammation. Heart disease is inflammation; so many diseases that we die from now are diseases of inflammation. Now, if we can cure inflammation—it is possible some say; I don’t know, it’s not going to happen to me anyway—the average lifespan could go up to age 130. Now that’s what I call economic growth.
Think of what one can achieve, assuming one keeps one’s marbles and physical fitness. Think about what a lifespan of up to 130 would look like and how that would increase economic growth. Because old codgers like me do have experience and capability that can be used to help the world. So that’s an example of economic growth; that would be enormous economic growth if we could figure out how to cure inflammation the way that we figured out how to cure and get rid of infection.
Q: Why has growth stalled in the UK?
[Lord Jon Moynihan]: Well, what the book shows is that there are—what I come to talk about—three devils that inhibit economic growth. The first is that the government takes up too much of the economy. The second is that taxes take too much out of the economy. And the third is that there’s too much regulation that inhibits new ways of doing things, which is where economic growth comes from.
And this regulation is really driven by a couple of perspectives, both of which are very growth-inhibiting. The first perspective is “we know best.” We at the center know best what’s good for you, mate, and we’re going to construct a set of regulations and rules that define how you should behave in your business, in your life, and so forth. And so that’s just one problem.
“Be kind” is the other. So nature, in its infinite wisdom—natural selection, whatever—has evolved the human race for individuals to be very different from each other in all sorts of respects. Not to get too fancy, but the guy who was most clever about this was Carl Gustav Jung, who defined psychological types—all sorts of psychological types. But the important thing was, he was explaining we’re all different from each other and we need to understand each other.
And one of the things that Jung figured out is that half of us are thinkers, and we proceed according to the facts. The facts say we should do that. The other half of us are feelers, and they say it feels right to do this; my values say I should do that. And nature, in its wisdom, says you need both kinds of people to push humanity forward, because that’s what has driven us to where we are now.
But now, the regulations that we come up with are all about “be kind.” They’re not about “what are the facts.” You may have seen—and I talk about it in the book—references to a thing called neurodiversity, and I don’t think most people who use the word know what the hell they mean by that, and one could mean all sorts of things. But they say, “Oh, we have a diverse civil service, or a diverse this or a diverse that, but we don’t have a neurodiverse one.”
And what I identify in the book is that actually it looks like what people mean by that is that we’ve got a huge amount of feelers deciding what should happen, and not many thinkers. And this is driving us into what is a really growth-inhibiting framework of the economy: social democracy. Now, social democracy sounds wonderful. It’s democratic, but we also worry about our society and how to look after everybody in it.
The trouble is, if you—as I do in the book—do a map of the world and look at the economic growth of different countries, the social democracies—that is, mostly in its extreme form, the Western part of the European Union—haven’t had growth for 20 years. And since the turn of the century, when Tony Blair and the Labour Party came to power, we have been on a long-term project to move the UK from a model that looked more like the US—which you might call classic liberal economics or free-market economics—we’ve moved it bit by bit towards social democracy. And that’s whether we had the Labour Party or the Conservative Party in power.
That has inhibited growth and moved us to a structure that’s going to be quite difficult to get out of, where there will not be economic growth.
Q: What are your views on the UK’s ‘productivity puzzle’?
[Lord Jon Moynihan]: The manufacturing puzzle is a very interesting one. In Volume 2 of my book, which is coming out in January, I talk about the composition of our economy and say that manufacturing appears to have dropped to about 20% of what we do, and the other 80% is services. The 20% includes construction as well as manufacturing. In fact, there’s a very good economist called Catherine McBride who was saying to me yesterday that manufacturing has actually gone down to 10% of our economy.
And there are theories of trade and economy that I espouse, like the whole theory of comparative advantage, that say we should move to be more of a services economy. But if we were ever in a very different world where there was a war and a this and a that, and we found we didn’t have the steel to build our tanks or warships and we didn’t have the food to feed our population, we might be bitterly regretting having gotten rid of manufacturing.
But the biggest issue is that we don’t have to argue about whether the decline of manufacturing is a good or bad thing. If we agree that the decline of manufacturing is in large part due to really stupid regulation—going back to those three devils I talked about, the third being regulation—it is regulation that has stopped us from having manufacturing in this country.
The most obvious example is the whole net-zero regulations. You can believe fervently that mankind putting carbon into the air is leading to potential disasters and catastrophes. But you can still say it’s ludicrous for us to be offshoring all our manufacturing to, say, China, because the same goods that we were manufacturing here, that are now manufactured in China, now have to be shipped all the way over here at considerable carbon cost. But also, they’re made in China where they’re made from electricity from coal-fired power stations. And therefore, the amount of carbon that goes into the air as a result of them being in China is way higher than if we had kept them here.
So arguably, if you believe fervently in reducing carbon emissions into the atmosphere, the one thing you want to do is keep manufacturing here, where we have developed a whole bunch of technologies for lowering the amount of carbon used in steel or car manufacturing or whatever. But instead of which, we have got the highest electricity prices in Europe, we’ve made it more and more difficult to be in manufacturing, and as a result, bit by bit, our manufacturing base, as you were alluding to, has disappeared.
Q: What would be your wish list of taxation reform for growth?
[Lord Jon Moynihan]: Well, the first point to make is that tax is taking too much money out of the economy. Now, it has to because it has to pay for an ever-increasing large state. So the state is too large for the economy and is taking resources away from the kind of private sector enterprise you were talking about there, Vikas. So you have to both reduce the size of the state and, at the same time, reduce the amount of tax you’re taking out.
But then the other thing I do in the book is look very carefully at—people have done multiple hundreds, thousands of studies on what kinds of tax help the economy to grow, or what kind of tax is least damaging to growth in the economy. The one that’s most damaging is tax on business. And both Labour and Conservatives have demonized business over the last 20 years. It’s a great shame because you’ve got people, for example like yourself, hundreds of thousands of entrepreneurs who are the engine of growth in society, and they have got all sorts of difficulties. They’ve got all those regulations I was talking about that they have to wade their way through, but they’ve also got taxes.
And to try and give an example from the middle of the economy somewhere: a chap I was talking to who runs a hairdressing salon—quite a big one, got about 50 employees who keep the place alive seven days a week and so forth. And when the Conservatives increased employers’ national insurance—which, by the way, Labour is also talking about doing—he said to me, “Well, that was paid to the two new people I was going to hire this month. So I can’t afford that anymore. On the margin, they’re no longer valuable employees to have; they’ll cost me money rather than make me money.” And that, you can repeat by hundreds and thousands of entrepreneurs when you put tax on business.
Now, the tax that is least damaging for growing the economy is on consumption. So VAT is the least damaging in terms of growing the economy. Now, everybody hates putting up VAT. But believe it or not, we have one of the least widespread VATs in the developed world. We only put VAT on about half the things that we could put it on. So if you broadened the base of VAT, you could then lessen tax on business. And then you could also lessen tax on people.
And unfortunately, it is the case that if you tax high earners a lot, then they go off to some country. And now, year by year, the number of so-called millionaires who are leaving this country has been going up and up, and this year it’s expected that more millionaires will leave the UK than will be leaving any other country in the world. Now, I was amazed that there are enough millionaires left, because I know lots of people—millionaires and billionaires- who have already left.
A funny anecdote. I was talking to somebody about three weeks ago who said he was going—he was gone—but he wasn’t gone quite yet because he called the mover to move his substantial belongings out of the UK, and he was told, “Sorry mate, there’s a queue. There’s so many people leaving that I can’t do you for a few weeks.” That’s one anecdote.
But also, the other point is that around the world, whoever you are, there’s somewhere that suits you to move to. You can move to America, you can move to Dubai, or you can move to Australia. For example, Australia doesn’t have inheritance tax. So if you’re 70 years old and you think you’re going to die soon, and you’ve got a family that you want to leave all your money to, you go off to Australia. Because if you die here, half your wealth will go into inheritance tax. And they’ve done all sorts of clever things to make sure you can’t have a trust or whatever to do that.
So people are fleeing out of this country. And what is really tear-inducing is London used to be the place in the world for everybody to come to, whoever you were. And yeah, you can be annoyed that somebody’s richer than you and is swanking around and spending money in fancy restaurants and has a Rolls-Royce or whatever. But they’re doing good for the economy, and they’re bringing capital in and starting companies and doing all those things—well, no longer.
And it’s not just those rich people; it’s young people in their mid-20s who are saying, “This place is not for me. I’m gone. I’m going off to Dubai.”
Q: Why are we so out of step on seemingly obvious reforms to encourage growth?
[Lord Jon Moynihan]: Well, it seems obvious to you, Vikas, because you’re in the real world. And if you don’t do the right things in your businesses, they go bust. You lose money, people lose jobs, and it’s finished. In government, that doesn’t have to happen.
I do believe that for the past decade, it doesn’t matter which party has been in power because neither of them has been running the government. It’s the civil servants who run government. And you can see that by the fact that—as I sit in the House of Lords—the same bills are coming through from Labour that were coming through from the Conservatives six months ago. The exact same bills they’re pushing through.
The bills against landlords, for example, are incredibly self-defeating because they just stop people from getting into the housing economy and refurbishing houses and things like that. But it shows it’s the civil servants who’ve written these bills, and whoever’s in power, they say, “Here’s a good bill for you to put through Parliament.”
And the politicians—very few of them have business experience—and so have bought into this idea. And by the way, they’re all sort of “be kind.” The Conservative Party, unfortunately, in 2005 when David Cameron took charge, altered its candidate selection. And so by the time you come to now, I would say 80% of Conservative MPs are of the “be kind” variety and are actually pretty—not massively—hostile towards the European Union and the whole social democracy idea. And of course, the Labour Party is massively on the “be kind” end of the spectrum. So nobody’s doing the “face the facts, here’s what works, here’s what pushes economic growth.”
Q: What are the consequences of the levels of government borrowing we see?
[Lord Jon Moynihan]: …if you think about it, the national debt at the moment results in interest costs every year of well over £100 billion. Now, say we had no debt—that £100 billion would be available for all sorts of things, including all your schools and so forth. So your concern about the debt is absolutely correct. It’s more or less exactly 100% of GDP right now, and it’s going up each year as a percentage of GDP, as my book lays out. And sooner or later, that results in disaster.
Now, the OBR said that in 50 years’ time we’d be at 300% of GDP debt. They happen to be wrong because things would go bang well before we got to 300%, so we’re unlikely to get there. But my own model—and I try to be extremely conservative—says debt will reach 150% of GDP by the year 2050. And that in itself will be very dangerous, as the world debt markets may no longer agree to give us money. And you’re back to the 1970s when Denis Healey had to go to the IMF to get a loan because the international debt markets wouldn’t give us money. So that’s a problem. You’ve got to get the debt down. But one thing I do in the book is show you how to get the debt down by lowering government expenditure. Government expenditure now is about 44% of GDP, and economists say the optimal level for the fastest growth is about 25% of GDP. So you almost have to halve it.
But I say if we can just get it down to what it was when Tony Blair took power from John Major—the state was about one-third of the economy. If you think about it this way: if the state is one-third of the economy, then you’ve got two private sector workers carrying one public sector worker or beneficiary on their backs—they’re sharing the load because it’s 66 versus 33. If the state takes up half the economy, then every public sector beneficiary or worker has to be carried by just one private sector worker. And that’s absolutely killing. So get it down to 33%. And what I show in the book is actually you could do that without really damaging all the things you want to do for society.
One of the things I talk about is halving the number of civil servants. And I believe we could do that without actually affecting how they help the economy, how they help society, as long as you get them to work properly. Nowadays, the civil service is taking the mickey. One thing that is going to destroy the economy is civil service pensions, which we do not accrue for. It’s all in the future. We promise them something today, but we don’t put money aside to deliver that promise. And that will be £130 billion a year in a couple of decades—that’s just on the promises we’ve already made. And unless we can sort that out very soon, nothing else will help. That’s just so much money.
Q: What is the view of the UK around the world?
[Lord Jon Moynihan]: Well, I’d say you can argue that in two quite different, diametrically opposite ways. One is that Britain still comes up as number two in soft power in the world. So there’s the US, and then there’s us. And all this talk about, “Oh, you can’t leave the European Union because it’s just a tiny little offshore island and blah blah blah,” no, actually, around the world we are considered number two in soft power—in other words, we have something to say to the world. So that’s wonderful.
On the other hand, hard economics—which I think is where you are focusing quite correctly—says, “No mate, don’t go there.” So I think we sort of broke the connection with international capital and multinational corporations when we raised the corporate tax rate to 25%. It was 19%—I think it was 19%—and we raised it to 25%. In other words, we raised the amount of tax you’d have to pay by a third. And that was not too many years ago.
And what immediately happened—and this was extensively documented at the time—is that corporation after corporation decided that no longer would they invest in the UK. And the poster child of that was when AstraZeneca was going to build a plant costing £400 million in the UK, and the plans were quite advanced. Then they put corporation tax up from 19% to 25%. And AstraZeneca announced a couple of weeks later, “We’re going to build it in Ireland,” where the corporation tax was 12.5%. Now I think it’s 15% because Ireland has agreed with the EU to push it up to 15%. But still, 15 plays 25.
…the decline of the UK has been across a wide spectrum. You were talking about, at one end, individual entrepreneurs starting up and so forth, and at the other end, these very large companies that have to make huge investment decisions. In neither case is the UK anymore the place of choice. And it used to be. Everybody would come, and London was the cultural capital of the world. Everything was wonderful, whether you’re talking back in the ’60s—swinging London—or what was the Tony Blair thing, Britpop and all of that. We were really influential, and everybody wanted to be here. Now, not so much.
And I’m sticking here, you’re sticking here—we want something good to happen to our country. But no, anybody who’s a bit more footloose and fancy-free is saying, “No, I’m off, mate.”
Q: What do you hope your legacy will be?
[Lord Jon Moynihan]: That’s a challenging question! Thank you for it. I guess it’s different depending on who you’re talking about. For family and friends and the people I work with in charities and the like, I hope my legacy is that I was seen as a decent chap and someone they’d remember with affection.
In the business world I’ve been in, I hope that the companies I’ve built endure, continue to be successful, and do good things for the world. And for my political stuff, including this book, I suppose I hope that the book will be seen in the future as a straw in the wind—a pointer, something for people to refer to that might give us some kind of signpost to how to get out of this disastrous situation we’ve been plunging ourselves into.