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.

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.