Monday, 10 June 2013
Wanted: policies for economic growth
Following last week's seminal speches by Ed Miliband, Leader of the Opposition, and his Shadow Chancellor, Ed Balls, the battle over the rights and wrongs of austerity is all but over. The Labour Party has been by electoral necessity - and the ticking clock of the electoral timetable - to talk now about the future, rather than the past. That means that all our long national arguments about 'the cuts' are a bit redundant now.
This blog has always argued that the austerity measures imposed in 2010 were misguided, especially rhetorically, and based on the false premise that the best way to reduce Britain's debts was to cut government spending immediately. Looking back over three years of anaemic growth, that doesn't look like such a bad set of arguments, now does it?
That's all a bit academic now. We are where we are - and that's going to mean at least two or three years of extreme public spending restraint whoever wins the next General Election.
But don't get the idea that this means that all macroeconomic arguments have ceased. Oh no. Quite the contrary. What it means is that we have to start thinking about how to speed up economic growth - in the end the only possible way to conquer big deficits. Just look at the US experience. Growth there is now reducing government spending faster than expected in the short term, and though the Americans' federal budget faces plenty of challenges over the medium- to long-term, things look relatively rosy in Washington compared to London and Paris right now.
A mix of spending restrating and new priorities meant that most Blairite of truisms - hard choices. How might Labour speed up growth? Here's four ideas. You can write your own if you'd like, and I bet you'd do better than
Houses, houses, houses. Britain faces one massive structural deficit we can all agree on: that of good, honest, basic dwellings for people to actually live in. Forget bad, misguided, mean and downright grotesque policies like charging tenants for 'underusing' rooms (the so-called 'bedroom tax') - which only reveal, in their turn, just how few options anyone without tens of thousands of pounds in their pocket really have. Forget pump-priming the housing market for the middle classes via the absurd Help to Buy scheme, an endless car-crash of a policy that keeps on giving. Just build more houses. Millions of 'em. Only that basic effort will stop us running slap-bang into another housing boom and crisis. If you have to slow welfare spending, perhaps by raising the state pension age sooner than expected, or means-test more, or cut elsewhere, do it. Just do it.
Science and technology investment. Actually, George Osborne as Chancellor (above) has been relatively clear that he agrees with this one. He'd better deliver - perhaps by moving health research into the relatively protected NHS budget - because if he doesn't, then one of UK PLC's main competitive advantages will be ruined. Pharmaceuticals? Aeronautics? Computer software? Technical instruments? In these Britain continues to lead the world - partly because it's got a world-class university sector that punches well above its weight. At the moment, the Government's ridiculous ring-fence around lots of lots of spending means that it's these (actually productive) budgets that are being squeezed. A new government will be able to lift the restrictions around the health service, foreign aid and defence procurement, and move money around more freely. Mr Osborne or Mr Balls could then make science R&D one of his top priorities.
Talk up the economy - and talk up infrastructure. Think of a country with laughable infrastructure - roads, rail, rapid transit, airports - and historically very low interest rates. What should it do? Yes, that's right - borrow to fire up a growth cycle akin to Asia's (£). Again, the Treasury have been tinkering with this, trying to lever in private money and Chinese investment. But they could go much further. A new (or renewed) government might be in a position to re-write the fiscal 'rules' on infrastructure spending, for instance in terms of urban bondraising for new trams and underground transit systems. It's no accident that London's been doing better than the rest of the country, for the reshaping of Crossrail, from Reading to Essex, is helping to change the economic weather - along with the capital's other advanges. Here again, we could do more.
Reverse engines on immigration. One of the more depressing elements of the current administration's sometimes-tawdry populism is its attitude to immigration. For all its problems, the influx of people over the last forty or fifty years had made Britain richer and happier - its people better paid, the economy more open and efficient, British companies able to hire who they like. Since 2010, Ministers have managed to hang a 'closed for business' sign up at Dover - with deleterious effects on family life, on growth, on university recruitment, and on the quality of the skilled workforce. It is to be hoped that a new government might return to a points-based immigration system, and cut out the ridiculous talk of getting to under 100,000 in net migration every year - an impossible goal if ever there was one.
There you have it - some new priorities. Better than arguing about the pace of cuts, isn't it?