Our aim should be a growth economy not a balanced one

17 11 2010

 * This is a seconding speech I made alongside Richard Lambert from the CBI against the following motion at this debate organised by the Royal Academy of Engineering, 

 This House believes that a manufacturing sector accounting for at least 20% of GDP will provide the only basis for a balanced UK economy

Many myths have grown up around the problems of the UK economy post recession-not the least of which is that the recession was apparently caused by some unemployed scroungers in Newcastle. But before we consider what kind of economic policies we need and how we should shape the future we need to avoid falling for the myths rather than the facts.

For example, we all know that it was the financial services sector that provided much of the dynamism of our economy in the past 15 years. It was the fastest growing sector, the motor of the economy, and had enormous positive knock on effects for the rest of the economy, not the least of which was to enable the state to create nearly a million new jobs. Even today, post recession, living standards in the UK are far higher than they were 15 years ago.

The financial crisis has been interpreted by some as a sign that we should look for a different way of organising the UK economy, hence today’s debate. There has been a growing distaste for the financial services which created prosperity, summed up by Vince Cable’s attack on the ‘spivs and gamblers’ in the city, and a more general sense that greed is to blame for our problems.

But it would be a mistake to conclude that what has happened over the past two years was because of an over reliance on the financial sector or the product of outrageous greed. The problem with the financial sector was not its dynamism per se, but that ultimately it fuelled a bubble which then burst-as bubbles tend to do. The problem was  not the dynamism which it brought to the country, ie the growth itself -which most of us enjoyed the benefits of- but the fact that it was based on a credit bubble and was ultimately unsustainable. Had the bubble not burst we would I am sure all still be happily doubling up on our credit card bills and inflating our house prices.

The point is that it would be a mistake to infer from the financial crisis that any one type of business would be necessarily immune from this kind of bubble. Currently it looks as if there is a bubble emerging in the BRICS, the developing countries, as huge amounts of money are moving into manufacturing and other businesses there. We saw in the recent past how a bubble emerged around the digital industry at the time of the dot-com boom and bust. There is nothing about the specific character of any  industry which can guarantee stability or prevent bubbles. The problem of investment bubbles is a general one, outside the scope of this debate

Secondly, the idea of balance is itself problematic, as it implies that balance is more important than growth. The concept  of a balanced economy has two major problems. Firstly it runs against the tide of globalisation. The world economy has become globalised and operates increasingly through an international division of labour. Countries which develop a particular area of expertise, such as the Finns in electronics or indeed the UK in financial services, can then sell their products globally.

Secondly, balance also carries connotations of the status quo ante, of going back to some prelapsarian state  when the making of things rather than money was virtuous, almost a romantic idea of how economies work. At this stage it is far more important for us to be trying to identify what we can bring to the world market in a better way than our competitors, to identify what can provide the engine of growth we need to break out of the current stagnation. Balance also contains within it the idea of sustainable growth, code for a slow or even stagnant economy. Consciously or unconsciously it is an endorsement of the lack of dynamism of our economy and offers only a further diet of austerity.

Of course, it may turn out that manufacturing can play this locomotive role , or the digital sector I work in and which the Coalition Government is very keen to push, but it might also continue to be the expertise we have in financial services, on a non bubble basis. Or indeed it could be a combination of one or other of them.  Indeed, I must confess an enthusiasm for engineering more generally, I would certainly like to see more large-scale infrastructure projects being backed by the state for example.

To sum up, it would be a mistake to put arguments for promoting manufacturing in order to achieve balance in front of arguments for growth. We need to focus on value, however it is created. Better a one-sided growth economy than a balanced stagnant one.

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And the election winner is…austerity politics!!

13 05 2010

So we now have a government that I am guessing virtually nobody in the UK who went into the polling booths actually voted for, a Con-Lib pact. To me it feels like a kind of coup d’etat, in a very polite English kind of way of course without the martial music.  This uncomfortable feeling is compounded by the announcement that a fixed term parliament of five years has been agreed. Not only did we not vote for this government but we are apparently stuck with it for five years.

Of course, there was so little between the parties in terms of policy that in practice any outcome, whether one party or a combination of the parties, would have made little difference to what is about to happen to us as a nation. As is becoming clear, all of the parties, and certainly this new government, are committed to a future of economic austerity.  Already there is talk of big tax rises, both direct through capital gains tax, and indirect, through VAT. While we are still waiting for detail on public spending , events elsewhere, such as in Ireland and Spain where wage cuts in the public sector are being implemented, are surely a harbinger of what is to come.

The almost unchallenged assumption throughout mainstream politics  is that austerity economics is the only way forward.  Much of the already pitifully small investment planned by Labour for upgrading the infrastructure of the UK has been scrapped or threatened with delays. The third runway at Heathrow will definitely not go ahead, the Crossrail project could be canned and the high-speed rail link  from London to Birmingham and beyond is in doubt.

What plans does this new government have to stimulate economic growth, which is the only alternative to austerity? There has been nothing in any of the pronouncements so far which has addressed this in any concrete sense. The focus is entirely on cutting the public spending deficit, mainly  to appease the financial markets, the same markets which were invoked as a reason why this coalition had to be put in place as quickly as it was.

Indeed the mood music is that the Liberal influence will make this government even more prone to sustainability and a green agenda than the last, another way of describing low growth expectations. Both Tories and Liberals are against state involvement in the fostering and development of new industries, something Labour’s Peter Mandelson was a late convert too.

The impression of a coup d’etat by a small, elite group of mainly upper middle class men will be reinforced once the cutting starts. One consolation is that this small group, cut off from any real social base or proper legitimacy,  may not even have the capacity to carry through a major attack on living standards.  But by the same token neither will it have the vision or decisiveness to take the steps necessary to modernise the UK economy. We are likely to be left with the worst of all worlds, an inward looking, pessimistic and unambitious elite which tries to micromanage the UK economy at time when boldness above all is required.

NB One of the main challenges for anybody who looks at the prospects ahead and recoils, is to develop an alternative approach to the economy. This means more than anything looking at why and how economic growth must be put at the centre of economic policy. Daniel Ben-Ami has put together a very helpful list of people who are trying to work in this direction. If you wish to become part of this, do get in touch with anybody on that list.





Ten questions to ask your candidates about the UK economy

12 04 2010

According to the papers today, the election focus of the main parties this week will move away from the economy and on to domestic issues. Apparently last week’s spat over 1% increase in national insurance is what the parties think constitutes a debate on the economy. If you are thinking, given  the deep problems facing the UK economy, that this is a totally inadequate level of debate on the economy then you are right. And this is what you should do about it….

If any electioneers come to your door ask them as many of the questions below as you can get in. The links in each question refer to a discussion of the topic in other parts of this website.

1. The UK economy is slowly but surely slipping down the international rankings of economic size. Do you think it is possible to reverse the UK’s relative economic decline? If so how?

2. The recession appears to be over, do you believe we are inevitably now in for a long period of austerity?

3. The whole idea that economic growth is a good thing has come in for a lot of criticism, from Greens and others. Are you in favour of economic growth as an objective, or should we all permanently tighten our belts for the good of the planet?

4. For the past ten years the financial sector has been the motor of the UK economy. Do you see this continuing,if not what will take its place?

5. Is it necessary or indeed possible for the UK to revive its manufacturing industries, or should we focus on growing our services business, which already makes up 75% of the economy ? 

6.The UK manifestly needs a better transport and communications infrastructure in order to operate effectively. What should any government do to make sure that, for example, our railways, roads , energy or broadband provision, are world class? Or is this all just a job for the market?

7.  Most of the plans for job creation laid out by the main parties are based largely on supply side reforms, such as encouraging the sick to go back to work. Should government be doing more on the demand side as well, through, for example, creating favourable environments for successful forward looking industries such as bioscience,through support in taxation, policies, enterprise zones, science parks, the kind of educational and training policies we pursue etc.

8. There has been a very risk averse public response in this country to some cutting edge scientific developments, such as GM food, nuclear power and some pharmaceutical and medical breakthroughs. What would your approach to public fears around these types of issues be? Do you think government should be leading public opinion in these kind of issues or following it?

9. Should the UK be investing more in space travel?

10. What do you see as the cause of the economic crisis, greedy bankers, greedy people or the over reliance on the finance sector?





George Monbiot is right about one thing-we should draw the election battle lines around economic growth

18 12 2009

Humanity is no longer split between conservatives and liberals, reactionaries and progressives, though both sides are informed by the older politics. Today the battle lines are drawn between expanders and restrainers; those who believe that there should be no impediments and those who believe that we must live within limits.George Monbiot

The debate about economic growth has a peculiar character to it. On the one hand there are the plainly anti-growth forces of the environmentalists, as embodied in the shape of George Monbiot, with their quasi mystical commitment to Gaia. On the other are those, like myself, who believe that continuous economic growth is the salvation of mankind. Then there are many who struggle to accomodate a sense of limits within a recognition that economic growth is desirable. Broadly speaking these can be characterised as being in favour of sustainable growth. I am fascinated by the interplay between the living reality of the  stagnant  economies of the advanced countries, including the UK,  and the prevailing orthodoxy of sustainable development.

Maurice Saatchi recently summed up succinctly a common view amongst the UK elite about our economic prospects

…during a recent visit to the London School of Economics. I asked if any professors thought it was possible, by an act of will, to increase the long-run trend rate of growth of UK GDP. The answer was: “It can’t be done.” Or at least that to do it would require preconditions so daunting that no realist could contemplate them — more investment, higher productivity, a different culture, a new education system, etc. That list is the dog-eared trump card of those who see such ambition as a touching illusion. For them, the growth rate of the UK economy will always be the “trend rate”. It is like the weather. You can complain, but you can’t change it.

There is a distinct convergence between the kind of people Saatchi was describing and those who believe in sustainable growth. As I have argued before, it is convenient that climate change offers both a justification for accepting what Saatchi calls ‘trend growth’ in stagnating western economies and an excuse for not looking for ways to change it. It is this pessimistic outlook which explains why so many are ready to jump on the ‘share out the misery’ response to the recession exemplified in the Tories championing of austerity.

We seem to have moved from TINA (there is no alternative to the market) to there being no alternative, stagnation is inevitable (NASTI perhaps?). There is an exhaustion of ideas at the heart of the political establishment which leads to fatalism about the economy. But we should remind ourselves that the economy is not something external to us. It is the sum product of our daily activity. It is influenced by our ideas and energy. It is what we are and who we are.

In the run up to the next election it is vital that a challenge is launched against the prevailing orthodoxy of NASTI. We should be arguing for:

*an end to negativity around economic growth. We need to create the infrastructure and support necessary to encourage a more entrepreneurial society.

*Government should be bolder in defending new technologies and scientific breakthroughs which have the potential to make us healthier and live longer.

* Government needs to play a greater role in modernising our transport and communications systems.