UK plc: a 0.1% chance of success at this rate
The ‘end of the recession’ in Britain? An honest debate about how to confront the malaise and restructure the economy has not even begun.
Such was the official excitement about the much delayed ‘end of the recession’ in the UK this week that the government’s department of bean-counters – the Office for National Statistics – held their first ever live press conference to announce the figures for British economic output in the final quarter of 2009. Everybody expected that these statistics would finally show some growth, thus breaking the run of six consecutive quarters of shrinkage and technically ending the longest UK recession on record. There were rumours that the ONS might even announce growth of up to 0.5 per cent over the three months to the end of December.
In the event, the grey men of the ONS declared without fanfare that UK gross domestic product (GDP) had indeed grown in the fourth quarter of 2009 – by all of 0.1 per cent. That is as near to zero as the rounded-up official figures could go – almost literally nothing for the authorities to shout about.
Of course, there was talk of how the initial estimate might have underestimated the economy’s growth, and of better things to come this year. Yet it seems more plausible to suggest that these miserable figures could represent an overestimation of the real state of UK capitalism plc.
One top British economist observed that, ‘The UK has had de facto zero per cent interest rates for almost a year, £200billion of quantitative easing, fiscal deficits heading for 12 per cent of GDP and a competitively valued currency – and all that the economy can muster is 0.1 per cent.’ In plainer English that means the government and the Bank of England have made credit as cheap as possible and pumped all the billions they can into the economy, as well as cutting value-added tax (VAT) on purchases, while the pound’s slump against the Euro and the dollar has made British goods nominally cheaper on foreign markets. Yet the result has been growth of next-to-nothing after 18 months of slump.
Whether UK economic output went up or down by a fraction of a per cent in the last quarter makes no real difference to anybody except the headline writers. The highly technical way in which the recession has been discussed, by peering at small percentage movements up and down from one month to the next, misses the point.
It allows everybody to overlook the far more profound economic and political malaise behind these passing statistics.
For years, the boom in debt-financed state spending and credit has bought time for British capitalism and created a situation where the authorities do not have to confront the serious weaknesses of an undynamic economy too reliant on the financial chicanery of the City of London. Even now, they are all hoping to maintain the pretence of imminent recovery until after the coming General Election.
But if things carry on as they are, two scenarios seem possible, and neither would look too good in an election manifesto. Either the UK economy will bump along the bottom, with low/no growth becoming the new normal and the best to be expected. Or, it is possible that things could yet go seriously pear-shaped.
Yesterday the head of the world’s largest bond fund warned investors not to buy the bonds that the British government needs to finance its borrowing, because the huge scale of those debts mean the UK economy is ‘resting on a bed of nitro-glycerine’. The potential explosion of that debt ‘bombshell’ is the only boom Britain seems likely to see if this state of affairs continues.
Yet our political, state and business leaders shy away from confronting the underlying economic stagnation, instead just trying to carry on and hope somehow for a return of rising house prices or consumer sales. To date they have been able to get away with this because of the expansion of public spending and borrowing mentioned above – and importantly, because of the absence of public pressure on them to do anything else.
Amid all the talk of the recession ending, it is worth asking whether in some ways it has even started yet. Many people will say that, despite rising unemployment overall, they have not yet felt the sort of impact that was common in previous recessions This has partly been due to temporary factors, such as low interest rates that have reduced mortgage costs for many. How long these benign side-effects will continue for remains to be seen.
But more importantly, the recession has yet to have a real political impact on British society. Unlike in recessions of the past, there has been no great divide between alternative explanations of the causes and consequences of this slump, no big struggles over how to get out of it and the future of the economy. The decline of working-class organisation and trade unionism also means there has been little collective pressure brought on the authorities to do something. Instead the effects of recession have been felt far more on an individual level, almost as a matter of differing personal luck than a political issue facing us all.
The absence of pressure has so far allowed the authorities to get away with just carrying on in the old ways, without even starting a serious debate about the need for a new, dynamic economy. With the election approaching all we are offered are, as one news reporter put it this week, ‘competing scare stories’, with New Labour warning that it would be fatal to cut public spending too soon and the Conservatives warning that it will be more dangerous to do it too late. Neither is prepared to confront the underlying problems of economic stagnation that the rising public debt has long helped to hide.
The point is surely that, whatever your political beliefs, you should see the current crisis as the cue for restructuring the economy. That is the way that any economy has come out of a recession and into a dynamic, durable recovery. It is not enough to simply build shaky new bits on top of the existing old economy that got us into the crisis. Yet who is even debating plans profoundly to restructure the British economy today, beyond paying lip service to the need for ‘more real engineering and less financial engineering’ in the UK?
We at spiked have never believed that state intervention is somehow a ‘socialist’ solution to the ills of capitalism. But there will be an important role for government in the restructuring of a new economy, encouraging economic dynamism and dealing with economic parasitism. The question of how that might happen, however, remains unasked by any party, never mind answered, as the election looms.
We do not need any more defeatist doom-mongering about the future; there has been a quite sufficient boom in that miserabilist sector already. But we do need an honest and clear-eyed debate about where we are going and how to change it. Without that, it seems fair to predict that there is approximately a 0.1 per cent chance that things can only get better.
Mick Hume is spiked’s editor-at-large.
Previously on spiked
Mick Hume warned that the no/low-growth economy might become the New Normal. Sean Collins said banker bashing is making Obama blind and criticised the new-found faith in John Maynard Keynes. Daniel Ben-Ami argued that blaming bankers glosses over long-term economic decline. Rob Lyons revealed the truth about the unemployment stats. Tim Black defended the British Airways ‘trolley dollies’. Or read more at spiked issue Economy.