The real ‘depression’ is in political outlook
Today’s economic problems ought to be more manageable than past capitalist recessions, were it not for the crisis of leadership in the West.
Three months ago I wrote here that: ‘The economic outlook remains uncertain, but the recessionary psyche is at the top of the market.’ I was wrong. Not about the economic outlook; that remains more uncertain than ever. But ‘the recessionary psyche’ was certainly not at its peak in April. In recent weeks, what I called the ‘boom in depression-mongering’ has continued to rise to new record levels.
A day does not pass now without a new batch of headlines about how grim things are in the UK and wider economy, and how much grimmer they are going to get. That we are headed for a deep recession, if not already in one, is now widely taken for granted. The discussion has moved on to whether we are set for a full-scale economic depression. Those searching for historical parallels for our current crisis appear to be travelling backwards in time, starting with the recessions of the early 1990s and then the 1970s, before arriving back at the granddaddy of them all, the Great Depression of the 1930s.
The speculation about a new depression seems as overheated as the UK property market was a few months ago. It appears that some experts today have forgotten what a real deep-seated recession looks like. The economic amnesia was evident this week, in reports that inflation in the UK has reached a ‘record high’ of 3.8 per cent, which to some of us with slightly longer memories does not seem higher than the inflation rate of around 25 per cent in the mid-Seventies. In many ways, the economic problems today are not comparable to the recessions, far less the depressions, of the past.
Yet in one sense at least, we do seem to be in a more parlous state than our forebears. There is a crisis of leadership in contemporary politics and society that is hampering the capacity of government and business to cope with economic problems, and threatening to make matters worse. The collapse of authority and vision among the political and cultural elite is a bigger barrier to recovery than any fall in the property markets.
Despite the confident-sounding predictions of imminent doom, there is no way of knowing for certain what the outcome of the current malaise will be. Global capitalism is in the early stages of a severe financial crisis, as evidenced in the ‘credit crunch’, which is hitting mature Western economies such as the UK hard. Yet for all the talk of another great depression, the UK – along with other major economies – is not even in a technical recession yet (defined as two successive quarters of economic contraction). We have seen sharp falls in economic growth rates, and some quite substantial job losses in vulnerable sectors, such as the housing, retail and financial industries. But national output is not yet falling.
More importantly, even if Britain and other advanced economies do slip into technical recession, we should not be too quick to claim the situation is the same as it was in the 1990s, 1970s or, least of all, the 1930s. The factors driving this economic slowdown are different from those of ‘traditional’ capitalist recessions in the past, and arguably not as destructive.
Historically, the classic capitalist crises of profitability were manifested in industrial stagnation and the shakeout of jobs and companies, leading to mass unemployment. The developed nations, particularly in the UK and USA, have different economies today, already largely hollowed out of industry and dependent on credit-fuelled service and financial sectors. Instead of industrial stagnation, we are experiencing a softer consumption-led slowdown, a trend towards less shopping and spending and house buying as more people perceive themselves to be less wealthy. The impact of house price falls, aggravated by higher food and petrol/energy prices, is creating a greater sense of economic anxiety in the public mind even without the onset of mass unemployment (and despite the fact that other prices for many manufactured goods are still stable or falling).
This is symptom of the hollowing-out of productive activity in Western economies such as the UK and USA. As discussed previously on spiked, the British economy has become increasingly dependent on the consumer, financial and house-buying sectors, increasingly financed by credit and capital flows from dynamic developing economies. The inflated values attached to paper assets such as share and house prices has disguised the relatively low rates of economic growth even in the ‘boom’ years just ended.
This rather fragile economic base means that the UK and USA are particularly exposed to the problems of the ‘credit crunch’, and vulnerable to a collapse in confidence. Many of the grim statistics published recently are actually based on surveys of consumer, business or house-buyer attitudes as much as hard economic data. When a consumption and credit-fuelled economy appears to be underpinned by the ethereal ‘confidence’ more than real capital values, however, the subjective mood is very important. It becomes possible to talk yourself into a deeper crisis.
While developed Western economies today are not facing the sort of industrial stagnation and collapse of past recessions, it might seem that some have less substance on which to fall back in times of crisis. However, there are far bigger differences working in favour of the advanced economies today.
In the past, economic crises were exacerbated by other powerful social and political factors. During the Great Depression of the 1930s and the big recessions of the 1970s, the ability of capitalist nations to manage their economic crises was severely impaired by domestic political instability and industrial conflict, and by international tensions and the absence of strong global institutions. For example, the Great Depression may finally have been brought to an end by the Second World War, but for years beforehand it was exacerbated and prolonged by the conflicts among the great powers.
Today by comparison, the authorities should have a clear run at dealing with their economic problems. The short, token walk-outs by some public sector workers in the UK this week hardly compare to the mass strikes of the ‘winter of discontent’ 30 years ago. And despite all the rhetorical attempts to compare Robert Mugabe to Adolf Hitler, the problems over Zimbabwe are not comparable to the Munich crisis of 1938. Instead, we live in an era of almost unprecedented political and industrial placidity in Britain, alongside relative global stability where the institutions of international management remain in place and even an emerging power such as China does not want to rock the boat too much.
In these circumstances, the authorities ought to have far more scope to cope with the current financial dislocations. Yet they seem incapable of taking advantage, largely because of problems that are not strictly to do with economics. The biggest problem facing Western societies today is the failure of leadership. It is the crisis of leadership and purpose in politics and every other area that threatens to exacerbate the impact of something like the credit crunch.
There is no leadership ethos in the West today to compare to President Roosevelt’s ‘nothing to fear but fear itself’ battle cry of the 1930s, no grand vision of the road to recovery and building a good society. Over recent decades, our leaders have suffered an acute loss of mission and nerve. Now they often seem motivated less by a belief in a better tomorrow than by fear of the future.
The big banks and financial institutions, often accused of swaggering macho arrogance, are actually operating more like risk-averse old grannies, hoarding their money under the mattress rather than daring to lend or invest it. Meanwhile, the top political and financial leaders are simply reacting in panic to the latest development. Such reactive policies are often called fire-fighting. But this is a particularly passive form of fire-fighting, where you stand around the fire hoping it will burn itself out, and throw a hasty bucket of water at any flame that threatens to spread – as the US authorities did when the credit crisis hit two major mortgage institutions this week. Beyond such short-term reactions, leadership today looks more like a case of keeping your head down and hoping that everything will turn out okay in the end. Thus, the New Labour government still seems to harbour the dream of a fairy-tale ending where an army of first-time buyers come over the hill to rescue the housing market.
There is no sign of a 1930s-style economic depression, far less the rise of fascism or global war as some hysterics have started to predict. But the crisis of leadership in the West does threaten to prolong and worsen the impact of current financial problems. In the longer term, it could also catalyse the shift in economic power towards the East, where developing economies continue to grow strongly despite the slowdown in the developed world.
The gap between the doom-mongering about a new great depression and the small-mindedness of the political response starkly illustrates the problem. While we are told that the UK faces an historic challenge, what have Prime Minister Gordon Brown and his government been debating? Whether or not to put another two pence on fuel duty, and how to get the rest of us to eat up our leftovers. That could be enough to send anybody into a deep depression.
Mick Hume is editor-at-large at spiked.
Previously on spiked
Mick Hume has asked if society is paying the price for inflating property. He also warned that recession has caused a boom in doom-mongering. Phil Mullan gave us the truth about the credit crunch and argued that economic cycles are not what they used to be. Elsewhere, Brendan O’Neill showed how some greens are looking forward to recession. Or read more at spiked issue Economy.
To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.