Long Read  

What's stopping the UK economy from growing?

So, despite a high cost of living, and high salaries, companies like Roche, Novartis and Nestlé base their corporate headquarters there, as do Google and Meta for their European headquarters. 

Swiss entrepreneurs and CEO’s often refer to this as the Swiss 'economic model'. It is well understood that we are trying to create a virtuous cycle – one where government supports the needs of business by providing good infrastructure, along with an educated, law-abiding, socially secure workforce. And where growing and successful businesses support the government by paying high wages for high-quality workers and by paying their share of taxes. 

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Small government, big problems

The problem, by contrast, with low-tax, small-government countries is that they are far more volatile. When more people are left to fend for themselves there is less trust and more envy. Crime goes up. More people are dissatisfied with the status quo and fewer people feel like they are part of the system. The threat of social upheaval lurks ominously in public discourse. Such places usually do not rank high on measures of economic development or of happiness. 

And whether it is a portfolio investor like myself or the corporate investment arm of a multinational, such environments are unattractive. 

By contrast, we are looking for a stable environment with the rule of law; where there is no social unrest, where the population is educated, and where everybody gets enough of what they need. That might cost more in terms of taxes, but it is far outweighed by the benefits. 

Singapore is an exception in that it has low taxes while still being unusually attractive for business. But it is not a model that Britain can follow: Singapore has access to a very large pool of low-cost labour that comes to the country on very restrictive visas and does not really benefit from the system created for citizens.

Additionally, Singapore’s government can continue to deliver a low-tax regime because it has carefully thought through and solved problems. It did not get there by cutting taxes and shrinking the government without really addressing the underlying problems the government was seeking to address.

Perhaps, therefore, one should not be surprised that some of the world’s most successful enterprises are located not in low-tax, small-government jurisdictions, but in those where a well-funded government plays a meaningful role in supporting business. 

Investors like myself are looking for such jurisdictions and regions – where there is a government that takes intelligent decisions and allocates resources rationally.