Bernard Trafford: The big is beautiful myth has finally exploded

Big is beautiful. That’s what they used to say. It was a business term: a firm that isn’t growing is going backwards, shrinking. One must get bigger, acquire, constantly expand

Dr Bernard Trafford Headmaster of the Royal Grammar School, Jesmond
Dr Bernard Trafford Headmaster of the Royal Grammar School, Jesmond

Big is beautiful. That’s what they used to say. It was a business term: a firm that isn’t growing is going backwards, shrinking. One must get bigger, acquire, constantly expand.

Events this week have finally exploded the big/beautiful myth for me. Take the Cooperative Bank (I take it very personally). Nearly 15 years ago my wife and I concluded that we should opt for ethical banking and moved to the Coop.

It’s tiresome sorting out all those standing orders and direct debits. Nonetheless, long before the credit crunch and all that reckless lending (no, of course we didn’t see them coming), we wanted to put our money in a bank that was up-front about its ethical policies. You might call it an empty gesture, since we’ve always owed more than we’ve saved: but we felt good about it.

I don’t know much about banking, but I frequently get angry when I read what bankers have got up to. We Coop members are now to lose control of our bank, retaining only 30% ownership while US-based hedge funds take control of the other 70%. I’m beyond cross: I’m depressed.

The media’s pointing the blame at the bank’s own management. But hold on: just a few years ago, the smaller independent banks such as the Coop were leaned on by government to buy bits of the toxic big banks, now broken up. This year the Coop failed to buy some 600 Lloyds branches. That botched attempt revealed a £1.5b deficit: I don’t know if government played any part in that.

Even now the Coop is less deeply enmired than other banks were during the credit crunch. There will be no taxpayers’ money to bail it out. But two huge American hedge funds have seized control instead of allowing the bank to float its way out of trouble through share sales.

Those effective owners say they’ll maintain the bank’s ethical stance. It’ll start that way, I’m sure. But a few years down the line? I’m not convinced ethical policies have much to do with megabucks: big is more frequently ugly.

Government too likes to think big. After more than a decade of dithering by the Blair/Brown governments, the coalition is investing massively in nuclear power. Not with its own funds, though: the French and the Chinese are supplying the dosh.

As so often, government is doing too much, too late.

The North East is home to one of the few sensible commentators on nuclear power, Times columnist Matt (Viscount) Ridley. This week he pointed out how costly and slow the colossal new reactor at Hinckley Point, Somerset, will be.

Ridley, who understands both the science and the economics, observes that quicker, smaller alternatives could be prefabricated in factories, using British technology, and be up and running much more quickly. But government’s own cumbersome regulations and foot-dragging inefficiency make that a non-viable option, attractive as it might seem to most of us.

To guarantee our energy supplies for the future David Cameron has committed us to £8 a year on our fuel bills for ever, covering the cost (to foreign investors) of building the new plant and guaranteeing the supplier an enormously high unit rate for the power produced.

In Monday’s Journal interview, Matt Ridley described himself as “A free-market anti-capitalist”. That very Rational Optimist (read his book) is right: “If you’re in favour of the free market you’re not in favour of big business. You’re not in favour of monopoly, you’re in favour of competition … I see the free market as a genuinely liberal corrective against the tendency of both government and business to become too monopolistic and too cosy.”

Perversely, this administration keeps talking about “small government”: yet it’s too cosy with acquisitive multi-national companies while contrarily over-regulating and controlling. And it can’t even sort out energy prices.

Next time I’ll try to explain why smaller is so much more beautiful.

:: Dr Bernard Trafford is Headmaster of Newcastle’s Royal Grammar School. The views here are personal.

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