by Jonathan Todd
Once you start thinking about economic growth, as the economist Robert Lucas famously said, it’s hard to think about anything else. The British paradox, however, is that, while almost all policy questions come back to growth, our politics so lacks serious thinking and debate on growth.
In 2008 Barack Obama was the new kid on the block, Rafa Benitez and Fernando Torres were loved in Liverpool and reviled in Chelsea, and Gordon Brown was mid-premiership. It was a long time ago. Yet the British economy remains 3 percent smaller than it was then. The economies of emerging Asia, in contrast, are 30 percent bigger.
We recovered more quickly in the halcyon days of the 1930s. We have had our first double dip recession since 1975. We may still have our first ever triple-dip recession.
We are progressively poorer in real terms as inflation persistently outpaces growth. The less cake there is to share the quicker we are to point the finger at those who did not prepare it; whether these are global coffee chains that do not pay their taxes or “shirkers” that do pull their weight.
The longer the cake takes to bake the more austerity we are promised. It was meant to last until 2015 and now until 2018. We are halfway through this parliament and we have five years of promised austerity ahead of us – as we did at the start of this parliament. If growth does not improve and neither the doctor nor the medicine are changed then the current rate of progress and inflexible strategy will have us facing another full parliament of austerity at the end of this one.
In fact, current trends have us facing endless austerity. Without growth we can cut as much as we like and not reduce the deficit. The longer this persists the more invidious the spending choices will become. Only the organs of the state remain when cuts have already gone to the bone.
A sustained growth recovery would change everything: close the deficit; make the public spending choices less painful; and create the jobs and rising wages to ease the squeeze on households. Perhaps even a less resentful atmosphere in which the rhetoric of “shirkers” will have less resonance.
While economic theory is probably right to hold up innovation as the key to long-run growth, it tells us little about where innovation actually comes from. The green benches are not alive with chants of: “What do we want? Innovation. When do we want it? Now!” Even if they were and even if the frontbenches decided to act and got economists to tell them what to do, the economists would not even be able to agree on what constitutes innovation, never mind advise with a united, compelling voice on how to create it.
Innovation tends, though, to conjure images of a high-tech future. The reality of much of our business base is far from this. What largely remains in our ex-industrial regions, as Karel Williams has written in the Guardian and repeated at a policy review seminar in parliament last week, is a foundational economy of state-funded health and education plus privately operated utilities and retail.
The government, according to Ed Miliband in PMQs last week, hit people they never meet and whose lives they will never understand. That’s not the half of it.
It is debateable which is most removed from the foundational economy that now characterises much of UK plc: the ambivalence of the government about the slump without precedence over which they preside or the abstract, ill-defined calls for innovation offered by economists.
What matters is that we recover a decent rate of growth as quickly as possible. The mix of state and market that we use to secure this is much less important than that the growth itself is created. It doesn’t matter, as Deng Xiaoping said, whether a cat is black or white as long as it catches mice.
It says something about the depths of our malaise that Chinese communist leaders offer more pragmatism than our own leaders. George Osborne only cares for the cat called “deficit reduction”. But this cat catches no mice: man cannot live, as Roger Bootle wrote after the Autumn Statement, by deficit reduction alone.
We desperately need a politics that focuses on the important and an economics that can provide practical advice on securing what matters. This means a politics that gives much more attention to our growth performance and an economics that can say how growth can be secured in the context of a largely foundational economy.
Chinese politics treasures the important over the urgent. The failure of British politics to prioritise growth is indicative of a tendency for the urgent to drive out the important. We either change this or the welfare uprating bill won’t be our last agonising choice.
Jonathan Todd is Labour Uncut’s economic columnist