The slow decay of the British economy
Decades of risk-averse managerialism have left the economy in the doldrums.
Even at the end of the decidedly lacklustre 2010s, politicians and commentators still maintained that Britain’s economic fundamentals were pretty good, from high employment levels to low inflation. But over the past three years, the mood has darkened. After the financial battering of the lockdowns, energy shortages and the war in Ukraine, it’s become clear that Britain’s economy is struggling. New GDP figures released this week point to growth of just 0.5 per cent in the second quarter of this year.
Some sections of the political class have at least recognised that there is a problem. But others seemingly remain in denial. Prime minister Rishi Sunak and his chancellor Jeremy Hunt have accused critics of ‘talking the economy down’. They claim that Britain avoiding a recession is a sign of its economic ‘resilience’, as if a flatlining economy is a cause for celebration.
The government’s ludicrous attempts to downplay our economic challenges have unsurprisingly failed to quell the disquiet – especially when Britain seems to be performing far worse than other developed economies. Britain’s employment rate may be high, but many jobs are poor quality and low pay. The productivity crisis – the slump in output per hours worked – is a worse problem in the UK than in most comparable advanced economies. And Britain’s struggle with inflation is proving more intractable than elsewhere, with sharp post-lockdown price rises producing bigger falls in living standards than in most other developed countries.
There is also now a growing sense that Britain’s economic malaise is contributing to a more general decline in public services and living standards relative to other comparable nations. Britain’s housebuilding rate remains way below that of France. Its health service has fewer doctors, nurses, hospital and intensive-care beds per person than most of its peer countries. Its school buildings are deteriorating, its electricity grid struggling and its broadband coverage patchy. Signs of decay abound.
It’s no good the government trying to dismiss the sense that Britain isn’t working as undue gloom and doom. In the face of the shocks of the past few years, time and again, Britain’s economy has actually revealed its relative lack of resilience. Compared to its developed peers, it has simply been less able to cope with external blows and far slower to pull through.
Some try to pin the blame for Britain’s miserable economic performance on recent, specific events. But the causes go back much further than the pandemic or Brexit or the 2008 financial crisis. They derive from Britain’s greater dependence on aged capital in both the public and private sectors. This aged productive base is partly a legacy of its early industrial development compared with other nations. And this dependence on aged capital was reinforced by the relatively limited scale of economic restructuring after the Second World War, compared to other war-impacted nations, such as the US, Japan, Germany and France.
As a consequence, Britain’s public services and its businesses are generally operating with more technologically backward and worn-out structures and equipment. A striking instance, highlighted recently by the Guardian’s Larry Elliott, is Britain’s water infrastructure. Britain still has over 200,000 miles of leaky water pipes dating back to the 19th century. It hasn’t built a new water reservoir for over 30 years despite the expansion of the population by one-fifth in that time.
This chronic public and private underinvestment in infrastructure, and in research and development, accounts for Britain’s relative economic deterioration. Deindustrialisation started earlier in Britain than elsewhere, and fewer new sectors have been built up to replace the loss of those industries’ output and jobs.
That the effects of this long-term productive decay haven’t hit home until recently is down to two main factors. Firstly, since the 1980s, an enfeebled labour movement has made it easier for businesses and the public sector to keep wage costs down. Secondly, the growth of North Sea oil and gas production and the financial-services sector has eased the strain on domestic corporate profitability. But neither of these is still able to prop up the economy, especially after the financial crash of 2008. Since then, cheap debt has become the main way to enable households, companies and the government to keep going in the absence of sufficient productive capabilities.
The past three years of external blows have finally exposed Britain’s economic malaise to the light of the day. The chronic lack of investment across the board can no longer be ignored. But Britain is not just stuck economically, it is also trapped by its politics.
Following the hollowing out of traditional left-right politics during the 1980s, Western governments of all political stripes increasingly struggled to articulate what they stood for. And so, following the end of the Cold War, they embraced a technocratic, managerial style of politics.
Britain was no exception. Since the 1990s, its managerial political class has proved ultra-cautious and averse to any grand project or vision, such as economic renewal. It is concerned above all with managing the status quo. To that end, it has outsourced its economic responsibilities to supposedly capable expert institutions. Most notably, it delegated monetary policy to the ‘independent’ Bank of England in 1997.
The ascent of political managerialism has therefore gone hand in hand with a flight from democratic accountability. This has allowed governments since the 1990s to shirk and avoid responsibility for economic policymaking. In doing so, they have effectively acquiesced to economic degeneration.
This acquiescence has been made easier by the disconnection of the political class, and the new elites more broadly, from the rest of society. These wealthier, university-educated elites are less impacted by the financial hardships caused by a sluggish economy than the majority. They can use private healthcare, send their kids to the best schools and generally avoid Britain’s crumbling public infrastructure.
As a result, they have become less aware of people’s financial and economic struggles and are near oblivious to the popular desire for change. Hence they were astonished when a majority of Brits voted to leave the EU, the crowning glory of post-Cold War managerialism.
Britain’s political class is not just economically separate from the rest of society; it is also culturally separate. As political scientist Matthew Goodwin explains in Values, Voice and Virtue: The New British Politics, Britain’s elites tend to hold a cosmopolitan, ‘progressive’ outlook at odds with the values of most people. Indeed, they tend to look down on other people’s beliefs and moral standards as ‘problematic’, ‘backward’, ‘bigoted’ or worse.
This cultural and economic separateness has taken a particular form in Westminster. The political class acts largely to preserve its own interests. Careerism has replaced a sense of public duty. Within their clubby echo chamber, today’s politicians take comfort from their record of having muddled through every crisis so far. Why risk disruptive change, when they imagine they can muddle through again and again?
Their reluctance to unsettle the status quo explains why recent governments have put off making substantial decisions that might trigger additional uncertainties. As Telegraph columnist Madeline Grant noted last year: ‘In myriad areas of public life – from housing to energy to infrastructure – the merest suggestion of change meets a wall of resistance, and politicians of all stripes seem incapable of facing down the objections.’ Instead, governments are content to stumble from one crisis to the next. And all the while, they signally fail to engage with underlying economic challenges.
For Britain’s political class, stability is preferred time and again to change. As Sunak put it in his first speech as prime minister last year: ‘I will place economic stability and confidence at the heart of this government’s agenda.’
Stability may be desirable in many areas of social life. But this is not the case for the economy. Pursuing economic stability actually comes at a great cost. By privileging preservation over the disruption of business restructuring, governments end up entrenching the existing depressed conditions. Rather than embracing capitalism’s creative destructive tendencies, the government’s stabilisation efforts suppress them. The pursuit of economic stability holds back innovation and productivity growth.
The new elites’ pursuit of stability and aversion to disruptive change will not fade of its own accord – especially given their denigration of divergent or contrary viewpoints. Indeed, their dogmatism and dismissiveness of counter-conventional views help create a stifling atmosphere for alternative thinking – recall, for instance, the ridicule heaped by the political and media classes on the Truss administration, even before its infamous mini-budget, whenever it called for economic growth.
So to get out of today’s economic mess we first need to engage in Britain’s cultural battles. We need to challenge the new elites’ censorious and illiberal approach to politics. And we need to challenge their tendency to entrust all the big questions to the experts, while depriving the public of a say. Only then will we have the space for a fruitful public debate about promoting the creative destruction and open-minded experimentation needed for a flourishing economy.
Picture by: Getty.
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