Back to reality

Nobody knows how many more cracks are yet to appear in the global financial system, least of all the Masters of the Universe who got themselves into such a mess in the first place.

The question is, how much of a mess have they got the rest of us into? The consensus seems to be that when US investment bank Bear Stearns got caught with its pants down and was sold for a pittance, the credit crunch became a full-scale economic crisis.

The tragedy of all this would not be the failure of a group of financial institutions that got greedy and reckless when times were good and found themselves without a seat when the music stopped. It would be if the turmoil seeped into what we are pleased to hear people are again referring to as the ‘real economy’.

The real economy is the everyday world most of us inhabit. The engineering, technology and manufacturing sectors have a good case for claiming to be the most real of the real, concerned as they are with designing, making and selling things rather than moving money from one place to another.

The problem is that companies in our sectors often need to raise cash to finance growth, whether it be investing in new equipment to remain competitive or funding a vital R&D programme.

If that money is less available, or only available on far more onerous terms, then life suddenly gets a lot tougher, particularly when costs such as energy are rising elsewhere in the business.

It would be a bitter irony if the excesses of the financial system undermined the hard work the UK’s engineering and industrial base has put in to remain competitive under extreme pressure.

Out here in the real economy companies are growing, investing and innovating. Even the much-maligned manufacturing sector has found a renewed confidence based on a twin commitment to advanced technology and quality. Manufacturing has confounded sceptics who predicted that it would be to all intents and purposes an extinct force in the UK economy by the end of the first decade of the 21st century.

In its eagerness to nurse the wounded financial beast, the government needs to do everything possible to ensure that the productive sectors of the economy are not left in trouble of their own.

If anything good comes out of the current turmoil, it might be a wider recognition that an economy that is too reliant on services, and especially financial services, is one with a leaky roof, and it has just started raining.

Andrew Lee, editor