Austerity is not the only solution
Ahead of tomorrow’s live spiked debate on the future of business, Tim Black laments the lack of vision on the recession.
While no one doubts the reality of the recession, perspectives on the future of the economy are considerably more divergent, with desperate, straw-clutching optimism often going hand in hand with rather more pessimistic statistics-backed realism.
In terms of practical measures, however, the talk has been far more consistent. What is needed is a period of restraint, of austerity, as the Conservative leader David Cameron put it earlier this year. The financial system needs to be better regulated, and an end brought to the culture of greed that is now seen to characterise the pre-recession decade.
This Tuesday evening, spiked, in association with Clarke Mulder Purdie, is holding a debate in central London where we will look at the impact of such a recessionary mood on aspects of business behaviour long associated with economic growth, from risk-taking investment to innovation. In short, we will be asking: what is the future for business?
In keeping with the current mood, just this weekend, in a piece for the Observer, the head of the Audit Commission, Steve Bundred, argued that both Labour and the Conservatives were afraid of mentioning cuts in relation to the public sector for fear of alienating voters ahead of a General Election.
Concluding that further investment is not an option, Bundred argued: ‘Both parties know savings are necessary.’ He said that one ‘pain-free way of cutting public spending would be to freeze public sector pay, or at least impose a severe pay restraint. This is especially true if real wages in the private sector are falling.’ Not wanting to be seen to allow public sector workers an easy ride given the redundancies and pay-cuts in the private sector, Alistair Darling interjected: ‘Of course we have got to be fair with regard to people who work in the private sector.’ In other words, if the private sector is suffering, it is better that those in the public sector feel the pain, too.
Cutting-back and reining in investment seems to be the sole response to the recession. Whether it is British Airways urging its staff to work for free for a month, or the Confederation of Business and Industry calling for struggling firms to be allowed to suspend employees’ contracts for up to six months, there seems to be little alternative. But is this not a problem? As caution and restraint predominate, where will the investment needed to grow businesses come from? Peter Mandelson has proposed an Innovation Fund of £150million: is such a relatively small amount really going to make much of a difference?
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Some people, particularly certain trade unions, have resisted the economically austere climate. ‘Freezing public sector pay during a recession is not the way to steer people through it’, said Unison chief Dave Prentis. But his defence of public workers’ pay did not stop him blaming the self-interest of others: ‘Let’s be clear, the recession was caused by bankers and speculators and the lack of regulation.’ Such rhetoric is not limited to the unions. Bank of England chairman Mervyn King echoed such sentiments recently, when calling for more regulatory powers to back up verbal warnings: ‘Warnings are unlikely to be effective when people are being asked to change behaviour which seems to them to be highly profitable.’
If greed and overspending are deemed to be the problems, it is little wonder that the only proposed solution is regulation and cuts. But what effect will this have on businesses? If risk-taking investment is stigmatised as reckless and greedy, demanding regulation and scrutiny, won’t that stymie businesses’ ability to find investment?
In his contribution to the online side of the spiked/CMP debate ‘What Future for Business?’, the economic adviser to the British Chambers of Commerce, David Kern, admits that there ‘has been a lot of reckless speculation and short-termism in the investment banking industry; but this is not genuine capitalism, because the rewards were given for illusory short-term gains. For me, real capitalism involves risk-taking and innovation.’
And this raises a crucial question: as the recession bites, is the political response to it, whether framed in the language of greed or austerity, not in danger of ruining that very entrepreneurial spirit essential for economic growth? This question, and many more, will be debated at the live spiked/CMP debate in central London this Tuesday evening. Book your tickets now.
Tim Black is senior writer at spiked. Buy your tickets now for the spiked/CMP debate ‘What future for business?’ in London on 7 July. Click here.