Call this a recovery?
Even if UK capitalism avoids a full-scale depression, the danger is that the no/low-growth economy becomes the New Normal.
The New Labour government’s authority and credibility may appear to be in ruins on every front from Afghanistan and Megrahi to expenses and education. But never fear, prime minister Gordon Brown has a cunning plan for a successful fightback. He is apparently planning to ‘seize back the political agenda with a new focus on the economy’, confidently pinning his hopes of victory in next year’s General Election on evidence of a recovery. As one headline puts it, ‘Economy is on the mend, says Brown, and we did it’.
So, never mind that Brown was Tony Blair’s chancellor through the decade that stored up the problems which exploded in the credit crunch. Never mind that New Labour has consistently been wrong about the depth and length of the recession. We might recall, for example, the boast that Britain would lead the major economies out of recession. In fact the UK is one of the last advanced economies still shrinking, down by a further 0.7 per cent between April and June this year – and even if that statistical shrinkage were to stop soon, official unemployment is set to continue to rise towards the three million mark.
No, despite all of that, New Labour reportedly remains sure that it can persuade us gullible voters to back it as the party of economic recovery, with Brown aiming to launch his new revivalist message at the coming G20 summit. Such a deluded bid to assert its authority risks making New Labour look even more pathetic than its failure to give any sort of lead over the release of Megrahi. Who would buy shares in Brown now?
Yet government ministers are far from alone in trying to talk up the prospects for the UK economy. Every economic story now seems to be spun in the most positive light possible. Thus the fact that things might now seem to be declining at less dramatic rates is presented as evidence of a ‘recovery’. Last week some news reports even invited us to rejoice at the news that the UK economy had shrunk by ‘only’ 0.7 per cent in the second quarter, rather than the previously estimated 0.8 per cent.
Readers will appreciate that spiked is never keen on doom-mongering. But dishonest presentation of economic realities can only distort any discussion of the future. The question is: how could there be any substantive recovery in the UK today? What are the dynamic factors or new sectors that might drive genuine economic regeneration? It is difficult to see much solid evidence beyond a blind faith that what goes down must eventually come back up.
The banking and financial services sectors that played central roles in the UK’s credit-fuelled paper boom of the past decade have taken a heavy beating – one reason why Britain is lagging behind other economies. Yet despite the rhetoric from politicians and financial authorities about how the big banks and City institutions have become ‘bloated’ and ‘overheated’, there is little serious discussion of how to rebuild and energise anew an economy that is too dependent on debt and the price of fragile financial assets.
Instead of debating the need for a new economy, behind the attempts to talk up the recovery there lurks the unspoken hope that somehow some of the good times of the past decade might just come back. A prime example of this seems to be the outburst of excitement over the recent rise in the London stock market. When the credit crunch bit, the value of the FTSE index of leading London shares slumped from its high of over 6,500 points to around 4,000. Over the summer, however, it shot back up towards the 5,000-point landmark, a rise hailed as the steepest in half a century, and greeted as if it were proof that the economy as a whole must be back on track.
How quickly they expect us to forget (or perhaps forget themselves). The inflated debt-funded value of the share and property markets in the UK helped to store up the problems that exploded in the credit crunch. When that happened, the authorities tried to assure us that this financial crisis would have little impact on the real economy. Now some would have us believe that an upward blip in share prices is a sure sign that the real economy of UK plc is being refloated. It seems more likely that share prices have been driven upwards by speculation, because there is little of substance worth investing in outside the City. The claim that some reported small rises in house prices, based on a tiny number of sales in a depressed market, are a sign of a return to economic health and confidence seems even less credible.
That there can be no return to the ‘business as usual’ of the past decade is confirmed by the figures for the extension of credit, which was key to the recent years of growth. It has just been reported that, for the first time ever on record, the total of personal debt in Britain fell in July as more people repaid mortgages and other borrowings. It may have only dipped by £600 million, out of a total debt of almost £1.5 trillion, but the symbolic impact sent a shudder through those who have fantasised that credit-financed consumer and mortgage spending could push up the economic stats as it has done in the recent past. It turns out, however, that consumers and mortgage-payers are not the mugs the experts and authorities assumed them to be.
The figures for credit to business appear even more stark. For years many businesses in the UK and elsewhere in the West have used easy credit to stay afloat and avoid facing up to hard decisions about the future. Now, despite the government’s much-vaunted multi-billion pound bailouts of the big banks, lending to business has continued to fall through the past quarter. In August even the London Evening Standard, traditional friend of the City bankers, reported that ‘lending to businesses plummeted by £4.1 billion last month, a far greater decline than the £300million drop seen in June, as firms repaid loans quicker than banks extended them’. It is not only that banks are too cautious to extend credit today. It is also surely that many capitalists can see little point in extending their borrowing if there is nothing profitable in which to invest.
And overshadowing all of these problems is the huge UK government debt, which in July reached some £800 billion – more than 55 per cent of Britain’s gross domestic product – the highest level ever recorded. That debt mountain alone rules out any prospect of a re-run of the credit-inflated ‘boom’. It appears that the state has already broken the bank to support finance capitalism. Yet what else is on offer from government or business today?
Of course, none of this means that we are facing endless economic decline and ever-deepening depression. The slump will eventually bottom out in Britain as elsewhere. But there seems little prospect of any substantive recovery on the horizon. In which case, ‘bottoming out’ could still leave us close to the bottom.
The question might then become, as a friend of mine recently suggested: is this the New Normal for UK plc? No devastating depression, perhaps. But no new cycle of dynamic growth in the offing either. Behind the economic headlines, other news gives a general sense of the future contracting rather than expanding, from the closure of company pension schemes and graduate trainee programmes to the floated proposal to cut 150,000 health service jobs.
Meanwhile, what new economic vision are our supposed leaders in the political class debating? They are arguing yet again about how to deal with bankers’ bonuses, as if that were the be-all and end-all of the economic future. However much they are or are not paid, it seems highly unlikely that the bankers and financiers are going to ride in and rescue the economy. Financial services is not going to play the role it did in the past, of papering over the hole where the productive UK economy ought to be. And any recovery in that sector is dependent on the creation of wealth elsewhere in the world.
We do not need to invest false hopes that upward blips in share or house prices herald a return to ‘business as usual’. What we do need is a debate about real investment in an economy for the future. Yet amid all the boasts of impending recovery, and the rows about who would cut how much from public spending, there is no sign of any such political leadership on the economy. If this is the New Normal, some might not need a depression to feel depressed.
Mick Hume is spiked’s editor-at-large.
Previously on spiked
Rob Lyons found the British government desperately seeking an economic revival. 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. As part of the spiked/CMP debate ‘What future for business?’, Eliot Forster argued that the UK is suffering from chronic risk-aversion. 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 pointed out that the recession was indicative of a deeper crisis. Or read more at spiked issue Economy.