Google’s awful day reminds us it is becoming less special

Allister Heath
YESTERDAY was a terrible day for Google, a firm used to success. Its slump in profits came as a shock to the markets. It shouldn’t have: the company is merely becoming more normal, especially following its decision to overpay for Motorola, and normal firms don’t do as well as revolutionary, super-smart start-ups.

As proof of Google’s coming of age, take this astonishing statistic from its SEC filings: it now employs 53,546 people globally, on a full time equivalent basis. That is more than the 40,400 employed by Rolls-Royce, the British industrial giant often held up as a model by the UK government.

Google’s revenues per click fell by 15 per cent, a worrying sign for the firm, though overall the firm reported turnover up by a still super-normal 45 per cent year on year, allowing it to notch up its first quarter with revenues of over $14bn. The bigger picture, as demonstrated by Google’s huge payroll, is that the fastest-growing new companies – a small subset of all start-ups, known as gazelles – are those that end up creating the jobs. The problem is not setting up companies; it is growing them successfully and turning them into gazelles.

It is easy to set up a tech firm on Silicon Roundabout; it is very hard to turn one into a viable SME; and it is extraordinarily hard to turn one into a new Google. The best way for any country to return to prosperity is to lay down a legal and macroeconomic framework that makes it as easy as possible for small firms to grow, including by raising equity – and let entrepreneurs do the rest.

Misselling is always wrong and must be punished, like all other kinds of fraud. But the way compensation and claims for the PPI fiasco are being handled is appalling. Many victims are rightly being paid back – but we have also seen the emergence of a dubious industry of ambulance chasers that keep bombarding the public with dodgy text messages.

Worse, it is clear that many individuals have put in fraudulent claims; because banking records don’t go far back enough, fanciful allegations are not being contested. What started out as an attempt to tackle an injustice and make right millions of genuine victims is turning into a free for all that will cost bank shareholders – including pension funds – billions of pounds too much. Fraud and lies are always wrong, regardless of who they are conducted by.

Another vital issue that needs to be resolved to make the UK more competitive is education. Boris Johnson’s latest foray in that area – he will be announcing several initiatives today – is welcome. The best will be his plan to set up a unit called New Schools for London, to identify fresh sites for free schools. Working closely with the boroughs and Department for Education, the Mayor wants to use land and some of the property portfolio owned by the Greater London Authority. Let us hope he delivers on this – the biggest problem facing new schools is finding buildings and then getting planning permission, with councils often blocking educational entrepreneurs. A growing population means that an extra 90,000 school places will be needed by 2016.

Other initiatives being unveiled by the Mayor include a new London Schools Excellence Fund, to help tackle underperformance, and a new scheme to identify and celebrate successful schools, especially in poor areas, with a view to share best practice. Illiteracy and innumeracy are national scandals that must urgently be tackled.