It’s time to get real about the recession
Political and media pundits have been far too calm and cavalier about this serious economic downturn.
As part of the spiked/CMP online debate What Future for Business?, spiked hosted a live discussion on the recession and potential recovery in central London on 7 July. Here, we republish Rob Killick’s introductory comments.
I am going to start off on a negative note. As a rational person, or at least someone who thinks of himself as rational, I am normally one of those people who tries to calm everyone down when we are confronted by social problems. With something like swine flu, for example, my instinct is to say: ‘Actually, it’s not nearly as bad as you think; things have been blown out of proportion.’
So I have found the recession a bit of a challenge… because the reality of the recession is that it’s actually much worse than most people think. Or at least it’s much worse than you might have been led to believe by the discussions taking place in the media and in politics.
At the moment, the impression that one gets from public discourse is that the recession was a relatively painful dream, a nightmare from which we are now waking up. After about half an hour of remembering how horrible it was, everyone will start talking about ‘green shoots’ and returning to ‘business as usual’. I currently feel a little bit like Cassandra: someone who is trying to tell the truth about the recession, but who is not being believed.
I want to make three points to bear out my opening remarks. First of all, I would say that the economic damage caused by the recession is deep, and it is not over by a long way. I say the ‘damage’ left by the recession, because technically speaking, the recession, defined as successive quarters of negative growth, may be over, or at least almost over. But the damage that has been done through the recession, and the prospects for growth out of the recession, are a different matter entirely.
If you look at what’s happening in the UK economy, unemployment is continuing to rise and will probably continue to rise into next year, which will have a lagging impact on recovery. The toxic debt question has not been resolved. It has been contained, for the time being, but it has not been resolved. All the major financial institutions are sitting on enormous piles of bad debt. And in the midst of the toxic debt crisis, enormous amounts of wealth have been destroyed.
The banks are not lending; they are too busy rebuilding their balance sheets. And businesses are feeling the crunch as far as finances are concerned. As for the securitisation business, which is what began the whole credit crisis, that has almost entirely stopped. Unfortunately for society, it was securitisation that was a source of a lot of investment over the past five to 10 years.
Globally, world trade has collapsed and the impact on the developing world has been dreadful. It is totally underreported, but very bad things are happening there: the flows of capital for investment around the world have slowed down dramatically. By almost every single measure the world is in a very bad position economically.
Secondly, for Britain there is no such thing as going ‘back to business’ as usual. And the reason is this: over the past 10 or so years, financial services were the motor for the British economy, and that is simply not going to come back in the same way. Public spending is now in deep crisis, partially, at least, because of the loss of revenue from the financial services sector and the money that has gone into propping up the banks.
Also, we now have what is effectively a political vacuum. The Brown government is utterly isolated; the other political parties have been discredited. They are now timid and feeble, without any clear programme about how they are going to help the British economy to recover.
The third thing is that we need to find new ways to grow the economy, and this is where the issue of innovation and risk-taking comes into the debate – or at least ought to. New economic developments almost by definition require somebody to take a chance. They require people to come up with new ideas and other people to back them; that is how innovation takes off.
The problem is that innovation and risk-taking in Britain were at a pretty low ebb before the recession started – and there isn’t any evidence that the recession has improved the state of risk-taking and innovation. In fact, as the Future Foundation found in its recent report, if anything people have become more conservative and risk-averse as a result of the recession.
We are culturally risk-averse today. We view new developments in science and technology with suspicion and hostility. Economically, as James Woudhuysen pointed out in the online version of this debate about the economic future, Britain has the lowest levels of research and development and venture capital in the developed economies. And politically, we are in a very bad place, too.
This, for me, is the reality. It’s not good. And yet, the public debate is almost totally detached from the reality of what is taking place. This reality, along with some visionary thinking, needs to be brought back into the public debate.
This is an edited version of a speech delivered on 7 July at the spiked/Clarke Mulder Purdie debate on the future of risk-taking and innovation after the recession. What do you think? Click here to read the contributions and join in the online debate today.