What’s the plan,man?

15 07 2009

A8XEFT1CAXT4P7TCA1JOBWCCAJXXQ6PCADUCE7FCAE9O5HFCA2AB2C1CA7RY56NCAUP751PCACXR496CAOP464QCA32RQJMCAHWA3EHCABORIQTCA60IOB9CA95NVCGCA2Q5ZWXCAXXBXCXCAOWF5TWCAX8VIECStill nearly a year away from an election and sunk in recession, the UK is drifting through both a political and an economic crisis. Reports from inside the civil service indicate that Labour’s loss of direction is causing civil servants to sit on their hands and wait for a Tory government to sort things out. Yet as Martin Wolf  argues convincingly in today’s Financial Times, the recovery from recession is going to be very hard work.

The UK lacks a strategy for the future or any kind of vision of what we want to achieve collectively. Politics has become short termist and tactical. (The most influential book on Tory thinking is called ’12 Months To Renew Britain’). There are some very important questions which require answers in order to develop a proper long term answers.

The first is, what’s the plan? New Labour had ten years of relative success based on the boom in financial services. Tony Blair now admits they were lucky. The financial services sector is not going to recover to play the same role as it did before. So what does any incoming government think is going to be the driver of the UK economy? And what are they going to do, through tax incentives, infrastructure improvements, educational policies to encourage whichever parts of the economy offer the most promise?

Is it possible or indeed desirable, for example, for the UK or any developed economy to reverse deindustrialisation? All western economies have seen a continued growth of services relative to industrial production. Yet service industries are notoriously people heavy and so tend to have lower levels of productivity.

Is it possible to reverse the trend for the state to play a greater and greater role in the economy?As James Heartfield and others have argued, the role of the state in the UK economy has encouraged flabby business practices and protected weak businesses from going under. Large chunks of state spending go back into the private sector. Is there a better way of doing this or should the state move out of  many of the areas it currently manages?

What is the legitimate role of the state? There are many things the state should be doing, to develop a modern infrastructure or education system for example which it is not doing well enough. At the same time as the state cannot operate on the big issues it seems to want to micromanage our daily lives through interference and intrusion on a massive scale. How can this be reversed? We need to have clarity on these questions when discussing what public spending we need and what we do not.

These are serious issues facing the UK. In the run up to next year’s election they should be the focus of discussion and debate for anybody who is dissatisfied with the lack of vision being shown by the main political parties.



4 responses

15 07 2009
Johny Morris

Scanning the week’s business news, it starts to look like my previous comments on this blog were strangely prescient. Over in the States Goldman Sachs announces record profits and the biggest bonus’s ever for its staff. Over here the big news is that a bunch of chancers including a past Chief Exec of the FSA have set up a company in that well regulated outpost of productive labour, Guernsey, with the aim of asset stripping (sorry “realising the hidden value of”) undervalued companies in the financial sector. Looks like same old, same old to me. So leading us out of this recession will be precisely those sectors that led us into it.

Will regulation be any better this time around? I doubt it. With a cumbersome tripartite regulatory arrangement and FSA top bod’s eyeing up the opportunities to do a bit of feather bedding I’d say unlikely.

But Robert, if you ruled the world what would you do? What policy alternatives does the government, of whatever colour, have? There’s no way we can go back to metal bashing. Not unless we can force huge wage and standard of living cuts so that we can compete with the India’s and China’s.

I think we can agree that we need to address the trade imbalances between the UK and, well most of the rest of the world. But what are we to sell? And importantly what are we to sell this year and next year? Re-tooling the British infrastructure has a payback in years if not decades. Even, that is, if we think ourselves capable of managing the project. Re-education ditto.

But why not play to our strengths and aggressively build an even more powerful financial sector capable of being the financial hub of the global economy? As Goldman et al have shown it’s probably the only recession proof business there is.

20 07 2009
Paul Reeves

Johny, I’ll leave to others to address your idea of “building and even more powerful financial sector…”

Here I’d like to respond to your idea of there being “.. no way we can go back to metal bashing..”, by which I assume you mean ‘making things’ in general. I think that we need to tease out some of the misconceptions around this area. I have no magic solutions either but at least lets get a bit more nuanced in our analysis over production/manufacturing.

Firstly, whilst labour costs are a significant proportion of the cost of a product different types of product require a smaller proportion of their costs for direct production (i.e. component manufacture and assembly)– through automation if the products or components are relatively simple (e.g. CNC machines for metal bashing, computer chip material substrate processing or robotic assembly of cars). Aircraft production is perhaps an extreme form of a product where investment in direct technology in manufacturing beats the low wage cost argument. I don’t follow the line that the UK can only be a ‘high value add’ economy in manufacturing terms but it is closer than just saying it’s not possible to make anything. Things (new materials) are often now either grown in vats or woven (carbon fibre) – which don’t necessarily require much human labour – but do require years or R&D investment and chemical process design upfront.

Secondly, manufacturing is not simply what you see occurring in a factory. That is the end result of time and is, in a limited sense, the result of socialised (at least within the company and its supply chain) effort of lots of brain power (accountants, procurement departments, safety teams, HR etc. ,as well as the obvious design and manufacturing engineers) all of which is augmented by other technologies (CAD/CAM simulation, spreadsheets, calculators, etc. ) – which again go some way to producing better designs, faster – using hopefully less human effort which manifests itself in some form as a lower proportion of wage costs.

Thirdly, whilst on one hand I agree with all of the sentiments expressed by people on this site that, in the west in general production/manufacturing has been ‘hollowed out’ through lack of investment and an almost wilful detachment by govt and investors , especially in the case of the UK, from the idea of making things as well as changing the physical environment in the form of infrastructure and building. My other hand says that we should RECOGNISE that the west does STILL produce ‘stuff’ the US, Japan and Germany especially – with the UK, Italy etc a significant way behind them (an argument in itself that it isn’t just low wages that determine whether things are produced) – if only to demonstrate that all is not lost and financial or environmental ‘services’ are not the only option for the future. If the wider public assume that we have lost ALL industry in this country that can only disenchant people more and incidentally why should the best minds train to be an engineer?

So yes, we as a society don’t invest (or be interested in ) production or productive activity any where nearly enough – but things are not terminal – just yet.

The real question is then, how can we get the people with the money to invest in the ‘non human’ capital required to compete in what is perceived as a low wage world?


A question –I would like people’s opinions on how much can the use of automation (robots etc) and software help in resolving the issue of productive investment? Robots are real – and in some ways add or at least transfer value during production – but the software used in design is actually in itself a service it seems to be a cost on production – how can automation and IT in some shape or form help in a dynamic post recession economy or is it really a distraction?

Paul Reeves
Cambridge, uk


22 07 2009
Will the UK retain its global financial role and withstand the threat from China? « UK After The Recession

[…] financial services would require a level of effort from the ruling elite in the UK which seems way beyond its current capacity. Better to cross their fingers and hope for business as […]

10 11 2009
Can the UK economy become dynamic again and does it matter if it doesn’t? « UK After The Recession

[…] the future and the commitments it has made to cut carbon emissions. What it is not is part of any concerted plan to reinject dynamism into the UK economy. We are still lacking any overall vision for how the UK is […]

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