We can do some things to help local economies grow and improve, and we ought to be doing these things. But at the end of the day, the success or otherwise of these local actions are affected by the national economy, and it certainly makes local improvements easier if we have a strong and improving national economy. If I think of the changes which have occurred to some of our cities over the last 15 years I can’t help reflecting how 15 or so years of general, and continuous, economic growth has had a huge positive general effect. So, this has led me to giving some general thoughts on the national situation. Nothing new, but I feel moved to say something anyway.
Last week’s economic growth figures for the UK’s economy suggests that the recovery which began last year has been stopped by actions taken by the Government and George Osborne. In the nine months since the 2010 spending review, and increase in VAT to 20%, there has been only 0.2% growth, compared to 2.1% in the previous nine months when it appeared that the recovery may have started. The ONS, in its report, said that the UK has so far only recouped 2.5 percentage points of the 6.4% drop in GDP which occurred during the UK’s worst post-war slump. The Government seems to be betting the house that deregulation of businesses and the planning system will cause reasonable levels of growth to occur, but to me this seems more of a long term thing rather than something which will have an effect anytime soon. As Keynes said, in the long run we are all dead. And as I say to make Keynes’s point clear, to get to the long term we have to be get through the short term intact.
Interestingly, and a time when you would have thought that George Osborne would have enough to do trying to return the economy to growth, he has revealed that in just over a year he has had 16 meetings with News International executives (more often than I have seen my mum – but perhaps that’s a fault on my part). It does lead one to wonder what the point of these meetings was – him telling them, or them telling him? Whilst on the subject, The Education Minister, Michael Goves has met Rupert Murdoch six times, most of which according to his department were ‘about education’ – again the question about who was telling who arrises.
Osborne stressed that the absolute fundamental requirement is economic stability. He may think that continuing to have little growth is stability, but this is surely not the sort of stability which the country as a whole needs, and certainly not what people need. And, remember that economics ought to be about helping people, and not an academic exercise as if people and their lives do not matter.
The Government told us that the pain was necessary to get the economy back on track, and that the private sector would automatically take up the slack left by cutting back the public sector, but this doesn’t appear to have happened (which shouldn’t be a surprise, as there is no evidence that this has ever happened, anywhere). Indeed, their strategy has led to the government borrowing more in June 2011 than it did a year ago, so even their debt reduction strategy isn’t working.
What growth there has been out of the UK’s deepest and longest postwar recession since the Second World War, means that this is the slowest recovery since the Great Depression of the 1930s: which is apt in many ways given that the ‘sound money’ dogma of 1930’s Governments and mainstream economists turned a recession then into a depression, a danger which again exists today because of the same ‘there is no alternative’ view of those who will not feel the pain of their own policies. Indeed, I was reminded of the irrationality of the so-called experts when I read the following from an analyst: ‘the financial markets value fiscal conservatism and deficit reduction, but fears that the UK economy will dip back into recession are mounting with very poor growth figures’. Well, it was always a possibility, to say the least, that this was going to happen, so it is worrying that we still have people in the ‘city’ who don’t seem to have heard of, or learnt from, the self-destructive ‘sound money’ policies of the 1930s – policies which eventually lead us the catastrophe of the Second Word War, and everything else which flowed from that.
Other data from the ONS shows that the economy is still almost 4% below the peak in early 2008, with no sign of the rebalancing in growth towards manufacturing and exports which the government says is their policy and strategy. Output from the UK’s factories actually fell in the last quarter. Industrial production as a whole is 11.4% below its 2006 peak, with manufacturing down 7.9%; construction is down 3.5%; total services are up 3.1%, with business services and fiance up 4.7%, and even Government and other services are up 3.3%. The total GDP is down 0.2%. Far from the economy being rebalanced towards manufacturing, and away from finance and the city, the fastest growing sector since the recession has been business services and finance. The output of lawyers, accountants, banks, and management consultants is up by nearly 5% since 2006, and by just over 3% since the banks began to recover from the 2008 financial crisis.
Germany and the USA have already made up the ground lost during the 2008-09 recession, but at the current rate of growth the UK will take until 2013 at the earliest before the UK is back to where it was in 2008. Despite the official interest rate of nearly zero, and quantitative easing and the fiscal deficit being 10% of GDP, the UK’s economy has barely grown at all since September of 2010. The Government’s strategy of weakening demand at home, and hoping that we can export our way to growth, seems to be very risky at a time when demand abroad seems to be weakening on the back of the Euro’s and the EU’s problems. And, the politicians of the USA seem to want to take their economy on a suicide mission.
The Economist Intelligence Unit expects UK GDP growth to be 1.1% in 2011, which is well below official forecasts, which means it highly probable that the Government will miss its deficit reduction target. And some commentators (such as Larry Elliot) say that the Chancellor may be forced to announce his fourth (yes, fourth!) downgrading of his 2011 growth forecasts during the autumn statement – when is he finally going to understand that his policies are not working, and will he (as Margaret Thatcher did) talk hard but actually do the opposite and eventually release more public expenditure in order to finally get things moving?
Some businesses (for example The British Chambers of Commerce, as has the business secretary, Vince Cable) have called for a restart of the Bank of England’s programme of quantitative easing, which put £200bn into the economy in 2009 and 2010 . I think this is necessary, but not in the form of buying bonds which so far have only served to strengthen the balance sheets of the banks – instead we need this sort of money spent directly by the government on investment in the UK: investment which will increase our productive capacity and get the economy moving.
In an ideal world this QE would go into investment in infrastructure and in increasing our productive capacity, but it is now so late that I think an early, and substantial, chunk of this will have to go on consumption in order to give the economy a quick burst of actively to restore some level of confidence, followed up in short order by investment projects – we can’t afford to wait for self-adjustment.
Last week I heard an interview by Joseph Stiglets where he said that the Government is repeating the mistakes of the 1930s, and that the UK does have a choice – it can spend money to invest. KMPG have said that domestic demand is being weighed down by government cutbacks and falling real wages, and exports and investment are still not strong enough to take up the slack. Well, it was obvious that this was at least a possible (if not probable) consequence of the Government’s economic policy, so why are most of the analysts and commentators so surprised when these are the policies which they have been pushing for, and why did none of them point this consequence out before, or during, the general election campaign? Is it that they didn’t understand the consequences of the polices which they have been pushing for, or is it that they now don’t want to take the blame? I can’t help thinking that we need more unemployed economic experts and commentators, especially those who are all in the same camp and can offer no alternative to the ‘orthodox’ approach. Would they be pushing for cut-backs if they were part of the cut-back?
And talking of people talking-the-talk but not walking-the-walk, Greece’s finance minister has asked that businessmen, shipowners and financiers who transferred vast sums out of the country return their wealth back to Greece and pay their share of the debt. Taken to is logical conclusion, the rest of the Greek population ought to leave, set up home in Germany (or in the large homes in London where some of these debt refugees have stashed their loot), and leave the politicians to pay back the debt.
Well, that was a bit of a rant, now back to helping local economies in making the best of a bad job. There are things which can be done locally, but it would be nice to do so without one arm tied behind my back. But, I suppose if it was easy there would be no need for what I do, and it wouldn’t be so interesting.