The UK economy after the recession-Part 7

13 02 2009

 

 Proposed ways out of the recession

More regulation

The Financial Services Authority will be beefed up in response to the credit crunch. It is planned to take on an extra 218 jobs giving it a total of 3000. It is clear that for the time being at least the message is that the finance sector needs to be both externally and internally policed more thoroughly,

In terms of finding the new people the banking downturn has helped only a little since the worst hit sectors include traders and bankers and neither group is exactly what the regulator is looking for. Those it does want-risk managers, product controllers and compliance officers-are still needed by the banks. In fact, the FSA wrote to the industry earlier this year warning them against making any cutbacks in these areas.[1]

This is as clear an example of closing the gate after the horse has bolted as one could wish to find. It is very doubtful whether more regulation could have prevented the credit crunch. Everybody was swept up in the bull market and dissenting voices were usually ignored. The issue of regulation now is largely irrelevant to getting us out of the recession.

Capital projects

It is already clear that attempts to move forward government spending on capital projects are limited by the extensive regime of planning agreements and consultations that have become an integral part of modern government. This means that projects such as new nuclear power stations or the extension of Heathrow can get bogged down for years. When Franklin Roosevelt became President and had to tackle the depression in the thirties he asked for one thing,executive power. Governments have to be prepared to override objections and cut through planning procedures if they wish to really make a difference in this area.

Focus on the digital and creative industries

Stephen Carter has been appointed to oversee the development of digital development in the UK. The government sees this as a key part of the future development of the UK economy. The report Innovation Nation[2] and more recently the NESTA report, Attacking the Recession[3], attempt to develop a strategy for innovating the UK out of its current difficulties. Neither report deals with the risk averse, over regulated nature of our society and the climate of low expectations which make a culture of innovation unlikely to develop.

 

Green new deal

What about a “Global Green New Deal”?…The industrial and service sector-led growth “at any cost” may have hit its limits – in terms of job creation and in terms of its ecological footprint on the world’s increasingly scarce nature-based assets. Gross domestic product as a measure of real wealth and as a bell-weather of economic success or failure may also have had its day in its current, narrow configuration.[4]

An emerging response to the recession is to call for a Green New Deal.  This response has the advantage that it appears to offer a way out of the recession by encouraging a switch to investment in green technologies rather than a return to the credit based boom of the past decade.

Some environmentalists go even further,

Unless economic growth can be reconciled with unprecedented rates of decarbonisation, it is difficult to foresee anything other than a planned economic recession being compatible with stabilising the climate[5]

While it is unlikely that the call for more recession will achieve great resonance outside the ranks of hard core environmentalists, there will be resonance for seeing the recession as an opportunity to speed up green economics, which could end up with declines in growth rates and consequent reductions in living standards.

Lord Stern, who produced the Stern report for the UK government on the economics of climate change, explains it like this,

We will have to pump up demand – by cutting taxes and increasing transfer payments and making investments that can take place quickly and are labour-intensive – all of those will matter. But we should be thinking about these things in a way that can start to drive forward a form of growth that is really well-founded and sustainable.[6]

Currently in the UK what the treasury defines as Environmental goods and services grew from £16b to £25b between 2001-4, employing 400,000 people.[7] However Stern recommends that,

it extends to new types of cars and other transport, new building materials and designs, energy transmission systems, new packaging for retailers, the redesign of manufacturing techniques, different farming methods, and a host of other developments in nearly all sectors of the economy

[1] FT December 1 2008

[5] Tyndall Centre for Climate Change Control

[7] The UK economy, analysis of long-term performance and strategic challenges march 2008 HM Treasury p33


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