Desperately seeking an economic revival
The British government seems more interested in saving its own skin than devising an economic strategy.
In October 1991, in the depths of the last major recession in the UK, then chancellor of the exchequer Norman Lamont seized upon a couple of business surveys showing a little more optimism about the future to suggest that the economy was finally turning around. He told his party’s conference ‘what we are seeing is the return of that vital ingredient – confidence. The green shoots of economic spring are appearing once again.’
The ‘green shoots’ phrase became a bit of a standing joke after that, even if Lamont was to some extent right. UK economic output probably did hit rock bottom around the time that he made his comment. But given that the recovery was painful and weak, and unemployment carried on climbing past three million over the subsequent couple of years, Lamont’s observation was of little comfort.
In January this year, Baroness Shriti Vadera, a UK business minister at the time, repeated the phrase – to equally loud hoots of derision. At least Lamont was half-right. This week, the UK Office of National Statistics (ONS) revised down its earlier estimate of economic activity. From January to March 2009, the UK economy shrank by 2.4 per cent, a decline not seen since 1958. Compared with the same period in 2008, gross domestic product (GDP) fell by 4.9 per cent – the biggest year-on-year fall since records began in 1948.
The most recent unemployment figures make ugly reading, too. For the three months to the end of April, there were an extra 232,000 people unemployed, bringing the total to 2.26million. Analysts are apparently divided on whether the total will hit three million again over the next year or two, but given that a shakeout in the public sector is inevitable, there will be a high level of joblessness for years to come.
Having fallen through the floor, it would be no great surprise if the economy has hit the basement and stopped. Many businesses and consumers can put off spending for a while, and companies can run down their stocks, leading to an exaggerated fall in the early phase of a recession. At some point, spending will recommence. Hence, the National Institute for Economic and Social Research (NIESR) could report in June that the UK economy had risen by 0.2 per cent in April and 0.1 per cent in May.
On the other hand, the Organisation for Economic Cooperation and Development (OECD) last week suggested Britain’s economy would shrink by 4.3 per cent over the course of 2009 and would not grow at all in 2010. Worse, there is serious talk of a ‘double-dip’ recession, with the economy recovering a little only to shrink again later, thanks to the huge overhang of public and private debt in the UK. One way in which this already expresses itself is the continuing inability of firms and wannabe homeowners to obtain credit. The banks are still so shell-shocked by the events of the past year that they continue to be obsessed with sorting out their own balance sheets, despite the government’s attempts to kickstart the lending of money through ‘quantitative easing’ (that is, printing money).
Meanwhile, in Downing Street, business secretary Lord Mandelson seems to have taken charge. Gordon Brown may still be prime minister, but you get the impression that he is increasingly the dummy to Mandelson’s ventriloquist. This week, saw the latest New Labour relaunch, Building Britain’s Future: more homes, new technologies through an Innovation Fund, national targets for the public sector replaced by enforceable rights for individuals, and guaranteed jobs for young, long-term unemployed people. All very New Labour and all topped off with a relentless accusation that the Tories are planning much deeper spending cuts than Labour would implement in the next parliament.
This is a strategy for dealing with the government’s crisis, not the country’s; this is not a long-term plan that will solve the economy’s problems. The government has already put off a spending review until after the next General Election on the pretext that the economic outlook is too uncertain, but the truth is that such a review is important right now so that we can plan ahead. Instead, we have been offered an electoral damage-limitation exercise. Even the positive-sounding Innovation Fund is much smaller than hoped for, a mere £150million with the private sector supposedly coming to bolster it in years to come. Not for nothing did The Times refer to Brown’s new initiative as ‘Rebuilding Labour’s Future’.
In truth, the government is still very far from being in control of events; immediate survival is the name of the game. The only hope for Brown, Mandelson and all to avoid electoral wipeout is that the economy picks up sooner rather than later while some terrible disaster befalls the opposition. Hence the wishful thinking for those ‘green shoots’. As Frank Furedi describes elsewhere on spiked, short-term political calculation has replaced long-term planning, with potentially disastrous consequences (see Why the state cannot save the economy).
Of course, the UK government is not alone in trying to talk up the economy. When times are hard, you’ll try anything after all. You can’t really blame stockbrokers and commodities traders for talking up prices. But when the people supposedly in charge of the economy can offer little more than crossing their fingers and encouraging talk, it becomes a major problem for all of us.
Rob Lyons is deputy editor of spiked. Buy your tickets now for the spiked/CMP debate ‘What future for business?’ in London on 7 July. Click here.
Previously on spiked
Rob Killick felt that we were only at the beginning of the economic crisis. He also looked at what’s in store for the British economy. Frank Furedi explained why the state won’t be the saviour of the economy. He also said we need a public debate about the economy. Phil Mullan explained that the recession was indicative of a deeper crisis. Or read more at spiked issue Economy.