The UK Economy: time to get angry with a crass political debate

May 11, 2011 by
Filed under: Adam Lent 

Not a happy day for the UK economy.  The Bank of England’s quarterly inflation report  forecasts high inflation and weak growth over the “next year or so”.  And an analysis from the FT reveals that recovery will remain “muted” due to capacity that has been lost for good in the banking sector.  And just to rub salt in the wound, the analysis also concludes that unemployment failed to rise as far as expected  not because of anything benign like managers wanting to hang on to skilled workers but because it was the less labour intensive parts of the economy that shrank the most.

Which all got me rather angry suddenly.  It’s easy to forget when reading these very high level analyses that high inflation, failure to grow, lost output are all proxies for more hardship, greater joblessness and lives not reaching their full potential.  There is real human misery behind all the wonk talk. And my annoyance was directed towards the politicians.  But not because one side is introducing supposedly unwarranted cuts or because the other side supposedly overspent but because the level of policy debate about these issues of such importance to millions of peoples’ well-being is conducted in such a narrow, thoughtless fashion.

We currently have two of the main parties (Conservatives and Lib Dems) committed to a very tough austerity programme while remaining vaguely of the view that sorting out the fiscal mess is the best route to growth.  However, these two parties aren’t quite as sure as they once were about that and so have falteringly introduced some rather limited pro-growth measures such as technology and innovation centres and an under-capitalised green investment  bank .

And we have the remaining main party being deliberately light on wider economic policy while trying to run as the champion of the anti-cuts agenda despite still, theoretically, being committed to a deficit reduction plan which may be less austere than the Government’s  but could certainly not be seen as anything other than a major exercise in fiscal consolidation.

Given the possibility that we could face a ‘lost decade’ or more in the UK if we don’t get this right, this really doesn’t seem good enough to me.  Surely the country has a right to expect a more serious, honest and reflexive debate than this.

Just to highlight how weak the debate is, there is an obvious and important policy position which is entirely missing because of the political and policy choices being made.  It might be called the “German Position” (if that didn’t sound faintly lewd). 

This is the argument that the best way to secure the UK’s economic future is to commit to a fiscally conservative position that would require some pretty tough medicine for the public finances.  This commitment would be made to keep interest rates low, hold taxes to a reasonable level and because running large deficits is high risk in an unpredictable world. However, because such necessary austerity will damage the economy and create joblessness, and because the global marketplace is ever more competitive, we also need a very bold and proactive growth strategy based upon state investment in new business, a major skills programme and a relentless focus on reshaping tax and regulation to spur innovation. 

In short the position is fiscally austere but very pro-active on growth.

Why no-one is taking such a position given it is staring us in the face when we look at the most successful export economy in Europe is baffling and represents a narrowing of political debate on an issue of fundamental public interest.  I wouldn’t nearly expect every shade of political opinion to like the approach, and it can certainly be challenged in some respects, but surely there must be a place in public debate for such a stance. But while the Government position remains so undeveloped and the Opposition’s position remains deeply political rather than meaningful, I’m not holding my breath.

Comments

  • http://twitter.com/leechalmers Lee Chalmers

    Adam, thanks for writing this. We need people willing to enter the political debate on issues like this, people who are not driven by tribal loyalties. I’d be interested in seeing the RSA host some of these conversations. What say you?

    • Adam Lent

      Thanks Lee. I think that’s a great idea. It would certainly be an achievement if we could fashion a debate on the UK’s economic future devoid of political calculation and ideological prejudice. I’ll make enquiries and post updates through the blog.

  • http://twitter.com/leechalmers Lee Chalmers

    Adam, thanks for writing this. We need people willing to enter the political debate on issues like this, people who are not driven by tribal loyalties. I’d be interested in seeing the RSA host some of these conversations. What say you?

    • Adam Lent

      Thanks Lee. I think that’s a great idea. It would certainly be an achievement if we could fashion a debate on the UK’s economic future devoid of political calculation and ideological prejudice. I’ll make enquiries and post updates through the blog.

  • Stephen

    errrr I’m baffled. You describe current political debate as crass and then you describe an alternative plan that either major party would probably say was actually their plan :
    Low interest rates (Hmm check) , reasonable taxes (what’s reasonable?), not running large deficits (remind me who was for this again?)– oh and strongly pro-active growth policies.
    Well how much you spend on pro-active growth or investment policies is totally dependent on what you think reasonable taxes and a deficit reduction rate is. Or indeed what you are willing to cut elsewhere to pay for pro-growth investment?I’m sorry perhaps you have spelled the details out somewhere before but as a standalone piece this is daft.

    • Adam Lent

      You’re missing the point. My argument is that no party or indeed any politician is genuinely proposing a plan that combines fiscal conservatism with a highly pro-active growth strategy despite this being an important policy stance. If you are arguing that the former means you cannot do the latter – that’s a fair point of view but I’m not sure I agree.

  • Stephen

    errrr I’m baffled. You describe current political debate as crass and then you describe an alternative plan that either major party would probably say was actually their plan :
    Low interest rates (Hmm check) , reasonable taxes (what’s reasonable?), not running large deficits (remind me who was for this again?)– oh and strongly pro-active growth policies.
    Well how much you spend on pro-active growth or investment policies is totally dependent on what you think reasonable taxes and a deficit reduction rate is. Or indeed what you are willing to cut elsewhere to pay for pro-growth investment?I’m sorry perhaps you have spelled the details out somewhere before but as a standalone piece this is daft.

    • Adam Lent

      You’re missing the point. My argument is that no party or indeed any politician is genuinely proposing a plan that combines fiscal conservatism with a highly pro-active growth strategy despite this being an important policy stance. If you are arguing that the former means you cannot do the latter – that’s a fair point of view but I’m not sure I agree.

  • Jonathan Haskel

    Adam, nice post. “In short the position is fiscally austere but very pro-active on growth”. Reaction: to ask the question is to answer it, namely, if i understand correctly, the question is “why dont we have more sensible infrastructure etc. spending?”. I wonder if the answer is government failure, that is, some institutional reason why such sensible spending actually ends up being diverted to something else e.g. tax breaks for movie stars and football players. in which case we need institutional change before we can do anything.

    • Adam Lent

      Thanks – useful point. I guess the institutional block is the Treasury and the Business Department, who for years have parroted the “we don’t pick winners” and “leave it up to the market” mantras which has closed down debate about whether we can fashion a growth strategy that avoids some of the mistakes of the past. There was a brief break from this while Mandelson was at BIS but it is back in force again as the long spat over the green investment bank reveals.

      The other block is the CBI and other business groups that for decades have stuck firmly to the line that business leaders should run businesses and politicians should keep their noses out. That was briefly dropped during the 1960s when it was patently clear business leaders had got it horribly wrong after 1945 but strangely the same view hasn’t really caught hold since 2008. Of course, 1960s interventionism was wrong in all sorts of ways but there is more than one type of interventionism.

      • Jonathan Haskel

        I think we need to better understand how to set up an instituttional mechanism that credibly promotes investment in growth (if we can identify it) and not tax and immigration concessions for footballers. I don’t see what the right institution is at the moment.

        • Adam Lent

          Would a state investment bank run at arms length from government and with a remit to invest in Briitish companies with the commercial goal of delivering a long-term return fit the bill?

  • Jonathan Haskel

    Adam, nice post. “In short the position is fiscally austere but very pro-active on growth”. Reaction: to ask the question is to answer it, namely, if i understand correctly, the question is “why dont we have more sensible infrastructure etc. spending?”. I wonder if the answer is government failure, that is, some institutional reason why such sensible spending actually ends up being diverted to something else e.g. tax breaks for movie stars and football players. in which case we need institutional change before we can do anything.

    • Adam Lent

      Thanks – useful point. I guess the institutional block is the Treasury and the Business Department, who for years have parroted the “we don’t pick winners” and “leave it up to the market” mantras which has closed down debate about whether we can fashion a growth strategy that avoids some of the mistakes of the past. There was a brief break from this while Mandelson was at BIS but it is back in force again as the long spat over the green investment bank reveals.

      The other block is the CBI and other business groups that for decades have stuck firmly to the line that business leaders should run businesses and politicians should keep their noses out. That was briefly dropped during the 1960s when it was patently clear business leaders had got it horribly wrong after 1945 but strangely the same view hasn’t really caught hold since 2008. Of course, 1960s interventionism was wrong in all sorts of ways but there is more than one type of interventionism.

      • Jonathan Haskel

        I think we need to better understand how to set up an instituttional mechanism that credibly promotes investment in growth (if we can identify it) and not tax and immigration concessions for footballers. I don’t see what the right institution is at the moment.

        • Adam Lent

          Would a state investment bank run at arms length from government and with a remit to invest in Briitish companies with the commercial goal of delivering a long-term return fit the bill?