Britain’s economic outlook is dismal. We need a new direction.

Yesterday the British Chancellor of the Exchequer, Philip Hammond, gave his Autumn Statement. It was his first big set-piece in that role, and the time the government has attempted to set out its financial plans since the country voted to leave the European Union. Amid the noise and kerfuffle that such events generate, it is easy to miss the big picture: Britain’s politicians have no answer to a dismal outlook.

What drives my pessimism? The most important piece of public life that I am involved with is schools. Looking back over the last decade there is much to be proud of in this patch of inner London. The professionalism and dedication of school leaders and staff have grown. The imagination they have used to reach out to disadvantaged children is wonderful to see, and the results impressive. Where once teachers vehemently defended their little classroom empires against any outside scrutiny, and blamed poor results on social conditions, I now see a new generation of professionals, willing to accept advice and scrutiny, and enthused by a team mission to ensure that all pupils achieve potential. Political credit needs to be spread widely. The New Labour government started the process by putting pressure on London schools to break out of the tyranny of low expectations. The Conservatives sharpened the focus on teaching quality. The Liberal Democrats’ Pupil Premium policy led to a step-change in the treatment of disadvantaged pupils, and will be their most enduring achievement in coalition. But the clouds are gathering.

Education funding is being squeezed. London schools are funded generously by comparison with many parts of the country, and so the pressure is being applied there sharply. Teaching Assistants, who do not have professional qualifications, are feeling the squeeze the most – just that section of society that is finding it hardest to make ends meet. And services, slowly but surely, are under threat. Children’s Centres, which provided pre-school support, we the first to be hit. Now nurseries are under threat. A system that was tackling the gap between the haves and have-nots is slowly being dismantled. And this picture is being repeated across public services generally. Health and social care services are gradually failing to cope with the steady rise in older patients. Neighbourhood police teams have been cut drastically, choking the process of community links and intelligence gathering. And so on. All this is slowly creating a society divided by education and the lottery of property ownership.

The Chancellor offered us no hope of relief. The government budget deficit is still 4% of GDP, a level not usually thought of as sustainable. A large current account deficit shows that the country as a whole is consuming more than it is producing, as it has been for the last two decades. To be clear, neither of these deficits is a cause to panic. In current global economic conditions they look quite sustainable for a good while yet. But they show that there are limits to what the state can fund. In conventional analysis what is needed is a bit of economic growth, and more productivity from British workers. But, for all sorts of reasons, that productivity growth has dried up globally. Mr Hammond boasted that growth in Britain compared favourably with other developed world economies. That is not good news, because it demonstrates that the country’s problems are deep-seated and unlikely to be solved by a bit tweaking here and there. We are all in the same swamp.

What we need to understand is that these problems follow from profound changes in the world around us. Developed world populations are aging – by which I mean that the proportion of older people is rising and leaving the productive workforce. Technological change is wiping out working class jobs, pushing economic rewards towards a minority of professionals and the owners of capital. Globalisation was making things worse in some ways for developed economies, but provided solutions in others – but in any case it is slowing down as the Chinese economy in particular matures.

And to this rather gloomy picture we are adding wonton acts of self-harm. Climate change is helping to destabilise the world, creating waves of refugees. In Britain, Brexit will make things worse. It is not that economic integration of the type offered by the European Union was helping particularly, but the act of leaving the union is creating a colossal distraction for both government and businesses.  It has also given populism, a turning inwards and the rise of charlatan political leaders bent on self-aggrandisement, a big lift, Donald Trump’s American isolationism promises to do more harm than good both inside and outside the USA.

Politicians  left and right are responding mainly by trying to turn the clock back to imagined happier times. The right imagine a world of self-sufficient, ethnically homogenous nation-states undistracted by the pressures of global integration and technological change. The left fondly recalls a time of institutional Keynesianism and an ever-expanding state. Neither confronts the challenges of technological change and the need to heal fracturing communities.

So what about hope? We have some things to play with. The current younger generation is the best-educated and most cosmopolitan ever in the developed world. By and large they are not fooled by the lure of the past – one reason why they are so disengaged by current politicians. That their expectations of an easy, inevitable and prosperous life are being dashed means that at least they will be open to positive change. Technological change has its plus points too, by enabling cooperation and personalisation. The advance of renewable and energy-efficient technologies offers plenty of hope too.

But we do need to start thinking of different ways of organising political and economic activity. Ways that offer less power to corporate monopolies, and better able to tax and recycle their profits (perhaps the most persuasive reason for staying with the European Union is  its ability to confront the multinationals). We also need to place less faith in highly centralised systems that struggle to deal with complex problems, while concentrating political and commercial power. We  need better schools, better public healthcare, and stronger, local public services to support struggling communities – and controlled by those communities rather than the whims of politicians in a far-off capital.

As blogger David Boyle wrote recently, we are in a dark tunnel, but we need to press towards the light at the end of it, not try to turn back.

 

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11 thoughts on “Britain’s economic outlook is dismal. We need a new direction.”

    1. Some countries (Luxembourg, Ireland) even managed that within the EU. Certainly it seems to be one of the big ideas of the Tory government. Trying to solve our economic problems by pulling a fast one on our neighbours rather than tackling the deeper malaise seems to count as innovative thinking these days.

    2. The UK hasn’t had to wait for Brexit for that to happen!
      https://www.theguardian.com/society/2012/feb/24/why-super-rich-love-uk

      Then we have the British territories of the Isle of Man, the Channel Islands, the Falkland Islands etc which the super rich also quite like!

      I don’t know why this argument isn’t made more often but if these places want to be British then that should mean more than drinking tea and toasting the Queen on her birthday.

      It should mean paying income tax at rates up to 40%. Just like everyone else on the mainland. VAT at 20%. Just like everyone else …… etc etc.

  1. “We need better schools, better public healthcare……”

    Better railways, better roads, better lots of other things too. And of course there is a limit to what we can afford. But that limit isn’t what we think it is. It’s not the the amount of money which is available to be spent by government on the basis of what it collects in taxation. It’s not even that plus what it can borrow.

    The limit is imposed by the availability of sufficient resources in the economy. If there are the people we can have the teachers, the doctors, the builders etc that are needed to make these things happen. If we don’t then we have to do without. There would be no point the government spending more. That would only create demand-pull inflation which would inevitably happen as a rationing mechanism.

    But, demand -pull inflation in the present depressed economy doesn’t look likely to be a big problem any time soon!

    , and stronger, local public services to support struggling communities – and controlled by communities rather than the whims of politicians in a far-off capital.

    My local library is “controlled by the local community” and is just about managing to stay open part time! The council just doesn’t have enough money and that wouldn’t change even if National Govt devolved more powers, for schools and hospitals etc, to them.

    Actually they’d be devolving more of the responsibility but not the power. There’s a significant difference to note there.

    1. Agreed. What an economy can achieve is limited by the fundamentals of human and physical resources. That is what is driving my pessimism for the economy as a whole. Demographics is a limiting factor, and technology is not taking us in the right way. Meanwhile politics is conspiring to make things even worse.

      1. Well if people are living longer then it would be reasonable to expect them to work longer too. The retirement age of 65 was set years ago when people started work at 14 or 15 and didn’t live much longer than 65.

        Now people often don’t start work until they are 25 and can live for another 30 years after retirement. So we need to reconsider what retirement means. The problem for many is that they are faced with choosing their existing job which may be 40 hours pw and 38 weeks per year or nothing. We need to allow more flexible options of, say 20hrs pw and/or 30 wks per year. That way we don’t completey lose the human resources we need to keep the economy moving on retirement.

  2. “.The government budget deficit is still 4% of GDP, a level not usually thought of as sustainable. ”

    Why not?

    If the trade deficit is 3% (of GDP) and the Private Domestic Sector want to save 1% (of GDP) the the Government Budget deficit has to be 4%. You know that as well as anyone.

    Actually the figures are more like 6% and -2%. It’s that level of private borrowing, largely on financing the housing bubble, which is unsustainable.

    When that bursts and the private borrowing stops…..

    http://www.3spoken.co.uk/2016/04/uk-sectoral-balances-q4-2015.html

    1. As you know, I see it a bit differently. If the government has a deficit of 4%, and the public has net savings of 1% then the external deficit must be 3%. That makes the economy dependent on either international capital markets or sweetheart deals with foreign governments. At some point both will seek payback or extract revenge.

      But I agree that the level of private borrowing may be more critical than the budget deficit.

      1. But we don’t see it that much differently. Neither of us is saying that we can adjust one parameter and the other two will do what we’d like without other adverse consequences in the economy.

        So, say we want to reduce the govt’s deficit. I don’t agree that we need do that but just for the sake of argument let’s say I’m wrong in thinking that.

        We can’t just cut spending and raise taxation, treating the deficit in isolation. We’d have to do something about the external deficit too (like pushing the pound’s value down?) and factor in what everyone domestically wants to save or borrow. If they want to do too much of either we’d need to take steps to discourage them!

  3. “….perhaps the most persuasive reason for staying with the European Union is its ability to confront the multinationals

    Is it? Nation states have armies. The multinationals don’t. Nation States not the multinationals create laws. If Amazon, Starbucks or any other multinational wants to operate in the UK it has to abide with UK law.

    When they are accused of not paying anywhere enough tax they claim, not without justification, that they obey the letter of the tax law. Obviously not the spirit though, but the EU isn’t much good in appealing to morality. The EU can’t help us out there.

    If we want to look at what is possible we might want to look at Iceland with its population of just 300,000. They sent bankers to jail after the GFC. Neither the EU nor the USA managed that.

    Then of course the nation state issues the currency (except in the EU of course) and the multinationals can’t do that. So, whereas we don’t wish to understate the power of the multinationals, neither should we understate the powers of the nation state.

    What powers don’t we have that might be useful?

    1. Hmm. You sound a lot like I used to. I got really annoyed when woolly left-wing types complained about multinationals making shock-horror but meaningless comparisons between company turnover and country GDP. I have spent much of my working life working in multinationals, including being on the management committee of a multinational division. Multinationals do a lot of good. Internationalists should believe in them. But.
      Many multinationals have developed a new type of business strategy: manipulating governments. Entirely legally of course. Tobacco companies bully developing countries (and others) in watering down or reversing public health policies. Food companies ditto. And there is tax of course – sweetheart deals with Ireland, the Netherlands or Luxembourg, for example. The payback on such lobbying, legal activism and manipulation beats that on research and development. The aim is push back competitive pressure so that the execs can milk the companies they run. The smaller the country, the more vulnerable – though that does not stop the USA and the EU being susceptible. But big countries, like the US and China, and confederations with bite, like the EU, can and do fight back, and have the potential to do much more. Could Britain on its own have taken on the sweatheart tax deals that Apple made with Ireland? Could we have forced Microsoft to unbundle its browser?
      What powers don’t we have that might be useful?
      The power to set multinational regulations that might have a major impact on big companies’ business models, and stop companies playing one country off against another in a race to the bottom.
      If we want to look at what is possible we might want to look at Iceland with its population of just 300,000. They sent bankers to jail after the GFC. Neither the EU nor the USA managed that.
      How many American, German or British bankers did Iceland manage to jail, exactly? And if an American or British banker had managed to destroy their home country in quite the same way as Iceland’s did, they might well be in jail too. The more pertinent question is just how did the Icelandic government let them get so wildly out of hand in the first place. Iceland has struggled to make headway against the big multinational banks.

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