Sunday Herald 9/12/12
According to the Mayan calendar, the world will end on the 21st of December, but reading the commentary on the Chancellor’s autumn financial statement last week, you could be forgiven for thinking that apocalypse had come early this year. George Osborne’s admission that his austerity policies will last at least until 2018 has led to much anguish and soul-searching as the Great Recession, as it has been called, slides into a Great Depression.
It’s bad. No point denying it. Britain’s slump has already lasted longer than in the 1930s,though the impact has been disguised by falling unemployment figures. However, this is largely because millions of people are now working part time in dead end jobs with no security and no future. The problem of public and private debt remains as serious as ever. British households owe more than annual GDP and government borrowing has actually been increasing – though this was disguised by Treasury jiggery pokery in the autumn statement, adding one-offs like the sale of 4G mobile phone licences. The Bank of England has been printing money like there’s no tomorrow and British exports have been falling despite the low pound.
All we hear is doom and gloom, as Sir Mick Jagger puts it (though at £400 a ticket he’s never had it so good). Some are saying that this is a structural change in post-industrial economies and that we can no longer rely on growth naturally returning after recessions; that we are turning Japanese and face a lost decade or two. But we should beware economic defeatism, however seductive. Doing nothing is not an option, and the government’s refusal to act is not entirely because it has run out of things to do. There are other agendas at work here – like cutting welfare and the public sector. The Tories don’t want to let a good crisis go to waste.
There is always something that can be done about economic decline – when there is a will to do it. The first step is to recognise when a policy isn’t working and last week’s appalling numbers confirmed that “expansionary fiscal contraction” is a dead duck. The Chancellor said in 2010 that he would eliminate the deficit in five years, yet borrowing is up. He promised that millions of new private sector jobs would deliver growth in 2012 of nearly 3%. Instead, we are slipping into recession. He promised that low interest rates and money printing would stimulate investment and house sales but they haven’t.
The Chancellor also said that the banks would start lending again; that grateful non-dom plutocrats, spared the 50p tax rate, would pour money into Britain; that great inventions like graphene would bring a manufacturing renaissance. Instead, the British economy is shrinking for the third time in four years, and manufacturing output, down 3% in October, has fallen for the last 19 months consecutively. The austerity programme was supposed to build confidence and prevent a sovereign debt crisis, but Britain is about to lose its AAA credit rating. If this isn’t failure, I don’t know what is.
This isn’t just a hard road: it is the road to ruin. Yet, somehow the Coalition appears to be getting away with it. The Shadow Chancellor, Ed Balls’, hesitancy in his response last week wasn’t entirely down to his stammer. It’s the failure to get his message across that has tied his tongue. Balls’ forecasts have pretty much been vindicated by events. Cutting too fast and too deeply, he said, would only make the slump longer and deeper. So why did George Osborne seem so upbeat in front of the baying Tory benches in the Commons last week?
Partly this is down to Labour’s lack of a moral alternative. Voters understand the idea of “living within your means”. Just borrowing more seems irresponsible and reckless given Britain’s debt addiction. We don’t want to end up like Spain or Greece, do we, having to pay unsustainable rates of interest on the national debt pile. But we should always remember that debt is relative. Britain has been here before, after the Second World War, when the headline national debt figure reached some 180% of GDP against today’s figure of around 65% (though this excludes things like unfunded pensions and bank bailouts). But that didn’t stop the Labour government setting up the National Health Service and pursuing policies that led to an economic recovery in the 1950s, based largely on state investment in housebuilding. In the 50’s and 60s housing starts regularly exceeded 300,000 a year; today it is barely a third of that figure. It’s not that the post war governments ignored the debt, it’s just that they had other priorities.
Simply cutting spending doesn’t solve a debt problem. Just as you can’t pay off household debt unless you have an income, you can only tackle public debt when people are in work and delivering the tax revenues to pay it off. Broadly speaking, wealth is only created when people and capital are put together producing commodities for a market, so putting people out of work in the public sector only makes the problem worse. The economic commentator Sam Brittan – a former adviser to Margaret Thatcher – has argued that austerity is a false economy, and that instead of cut backs the government should instead start setting national targets for GDP growth. Britain’s greatest economist, the late John Maynard Keynes said: “Look after unemployment and the budget will look after itself”.
In Britain, the most important challenge is surely the one million NEETs – young people not in education, employment or training – who are slipping out of the jobs market altogether and could become a permanent underclass. Countries like Norway and Sweden give an employment guarantee to young people, and as a consequence youth unemployment – indeed all unemployment – is much less than here. It really is a question of national priorities. It is the same with house-building, infrastructure, green energy, transport. If the banks won’t lend, then the state can take them over – since we already own many of them.
If we are, as the Business Secretary Vince Cable says, facing “the economic equivalent of war” then we have to recognise that it can only be addressed by a similar mobilisation of national will. And like a war, it has to be international. Sam Brittan calls for a “coalition of the willing” in Europe, America and South East Asia, to launch an international economic stimulus programme, not unlike the one coordinated by Gordon Brown in 2008. In the meantime, the government should take advantage of the very cheap borrowing available to get Britain back to work – as a moral choice.
The slump can’t be solved in one country, but it has to begin in one country. All this talk of mobilising national will may sound a little national socialist, but that only underlines the danger of allowing social and economic decline to go unchecked. If democratic governments, in the euro and elsewhere, don’t get their act together someone else might try to do it for them. Time is running out.