The British Growth Crisis

Since 2007 the question of growth has plagued the British economy. Though, at the time of writing in the early summer of 2014, growth has returned, a pervasive anxiety about the solidity, stability and sustainability of that growth persists, even in the most hallowed of elite political circles. Thus, even the recently appointed Governor of the Bank of England, Mark Carney, is concerned that the short-term boost in economic output that has occurred since 2013 is a product of the re-stoking of an inherently unstable and, indeed, further de-stabilising housing bubble, much like that which burst to precipitate the crisis in the first place. Britain, even in his terms, would appear to be dancing on the edge of the precipice once again. For the much-vaunted ‘rebalancing’, presented as a necessary pre-condition of any return to a stable growth dynamic by the principal parties and the cornerstone of the Coalition’s economic policy rationale, has yet to materialise. By almost all available economic indicators the British economy is more unbalanced today than it was in 2007 (for a more detailed assessment of which see Berry & Hay 2014), and that gives a rather different complexion to the return to growth since 2013. Re-contextualised in this way it looks all too like the product of a rather desperate, short-term, and carefully targeted pump-priming of the housing market (using tools like the Coalition’s Help to Buy scheme).

The current economic crisis in the UK, which began in 2008, has been the deepest and most prolonged for over a century. The level of output, or gross domestic product (GDP), is now 20 per cent below the pre-2008 trend,¹ and the cumulative loss of income since 2007 is equivalent to a whole year’s GDP. Even with the recent upturn in growth, no economic forecaster currently expects full convergence back towards the pre-2008 trend.² That trend had been well established, at least since 1948 when modern records began. Since there was also continuous growth from the early 1930s to 1948, this means that the UK economy is in new territory not previously experienced in most people’s lifetime.

The way that people think about policies for the future is greatly influenced by their take on what has happened in the past. This pattern is even more pronounced on the left with its tendency to be hypercritical. It is important therefore to look carefully at the experience of the UK Labour government 1997–2010 in order to understand what progressive policy making can and cannot achieve in the modern era. This chapter seeks to do that.

Understanding the roots of Britain’s failing economic model requires a deeper historicisation of British economic development than is commonly ventured. This leads us towards the Anglo-American dimension of British development and, in particular, the role that foreign direct investment (FDI) has played within a shared Anglo-American commitment to the promotion of an open, liberal, international political economy. As hosts to the world’s two major international financial centres, London and New York, state officials and bankers in Britain and the US, through their interactions and interdependence, were central to driving the politics of financial globalisation and capital market liberalisation in the post-war period.

A challenge for any government is to be able to operate effectively in the short-term and to think and act for the long-term. Any economic recovery strategy is likely to involve a capacity to govern in a way that enables the imposition of social costs long before economic benefits in terms of recovery arrive. Can governance for the long-term be assembled?

Why is it so hard for the Left to produce a coherent and progressive response to the crisis, when markets and private enterprise have so obviously failed? One answer is that the Left faces a trilemma in public policy: it must respond adequately to the economic crisis to be seen as competent; it must address the established themes in public opinion to be electable; and it must develop generous and inclusive policies to be progressive. This chapter identifies conflicts in all three areas where low public sector productivity growth and demographic shifts tighten already harsh spending constraints. Entrenched public suspicions of higher taxes for any but the distant rich and a public discourse which makes rigid distinctions between those deserving and undeserving of state welfare conflict with egalitarian or redistributive policies. Most Left strategies include higher public spending and more equal social provisions, but public opinion rejects both tax rises and greater generosity to the poor of working age. The Coalition strategy, by contrast, rests on private enterprise-led recovery, work ethic values and policies that exclude less deserving groups. It does not face the same problems. This chapter analyses a range of policy programmes suggested by commentators on the Left in the light of these points. It concludes that a progressive strategy must draw on multiple themes, and must seek to shift public discourse in a more supportive direction.

The central political battle in Britain’s response to the global financial crisis (GFC) has been over the meanings of fiscal rectitude and economic credibility. This chapter analyses that battle by charting some of the key decisions taken by the UK Government, situating these in the context of ideas about management of public finances and Keynesianism. It explores what has happened to debt and deficit discourse, and its political salience in the UK after the GFC. One aim of this chapter is to demonstrate the historically contingent nature of fiscal policy and sustainability assessment by comparing their shifting, conjunctural constructions, rooted in underlying political economic assumptions, and how these different underlying assumptions have become the stuff of a contested politics within the UK and in wider economic policy debates. Assessment of fiscal policy and fiscal sustainability must be placed in the context not only of material conditions in the national and global economy, but also of ideational factors — conventional wisdoms and climates of opinion (and their normative underpinnings) about fiscal policy, fiscal positions, and sovereign debt.

Recessions inevitably, and understandably, herald anxiety and much discussion about the headline performance of the economy, chiefly employment, income and GDP growth. Various indicators, such as exports, investment or consumer spending are closely monitored for evidence of economic recovery. The performance of individual sectors is important to this discourse, but sectors are largely treated as component parts — a way of disaggregating overall economic performance — rather than examined in terms of the intrinsic role they may play in the overall economic system. It is rare for mainstream economic commentators to dig very deeply into ‘what’ questions: exports of what, investment in what, or spending on what. Critical scholarship is not faultless in this regard. Colin Hay’s (2013) depiction of failure of the Anglo-liberal growth model represents a persuasive account of the British growth crisis and the conditions that triggered the deep recession of 2009. Again, however, we are invited to worry about an economy that pays too little to most of its employees, fails to facilitate long-term investment, and relies too heavily on consumer spending fuelled by debt and the housing market — concerns that manifest at the macro level of analysis, not the meso. The prominent role played by the financial sector in this critical account is the exception that proves the rule, as the ‘cuckoo in the nest’ it is (rightly) condemned as a key progenitor of the macroeconomy’s pathologies.

Over the past couple of decades, the local and regional scales of politicaleconomic organisation have gained a renewed prominence set against a backdrop of economic globalisation and state restructuring (Storper, 1997). Variously characterised as a ‘new regionalism’ or ‘new localism’ (Lovering, 1999), prevailing approaches to sub-national economic development regard the institutional capacity to foster bottom-up forms of growth based upon the harnessing of local skills and resources as a crucial source of competitiveness in an increasingly globalised economy (Bristow, 2010). Devolution has been identified as a key ‘global trend’, as a range of governments across the world have transferred power to regional institutions as a means of promoting political decentralisation and recognising distinct territorial identities, in addition to the promotion of economic development (Rodriguez-Pose and Sandall, 2008).

Both the current UK coalition government and its New Labour predecessors have emphasised the impact of globalisation in shaping economic performance and appropriate economic policy. David Cameron and George Osborne have talked of Britain needing to be a winner in the global race, whilst Tony Blair and Gordon Brown repeatedly stressed the challenges of the global economy. Whilst there have been differences of emphasis, there is a large degree of continuity in their approach to globalisation for national economic policy. Not only traditional areas of macroeconomic and industrial policy, but also other areas, such as welfare and education policy, have increasingly been framed in terms of the challenges of globalisation. Moreover, the UK economy was already highly integrated internationally, with relatively high trade integration and longstanding international financial and trading links, as well as multinationals going back to nineteenth century trading companies (Held et al., 1999; Hirst and Thompson, 2000).

It is a familiar proposition that economies such as Britain and the United States have an advantage in radical innovation and therefore in sectors in which this is relatively important, in general, high-technology ones. Hall and Soskice (2001) call such economies liberal market economies (LMEs), a term which is now too familiar to need definition here; we shall call them shareholder capitalist, following Tylecote and Visintin (2008). Hall and Soskice (H&S) also argue that economies such as Germany and Japan have an advantage in incremental innovation and therefore in sectors in which this is more important (in general, medium or mediumto high-tech). H&S call these, business co-ordinated market economies, CMEs, in which there is ‘considerable non-market co-ordination directly and indirectly between companies’ (Soskice, 1999: 103); again, we follow Tylecote and Visintin and call Germany and Japan stakeholder capitalist. This is a rather narrower grouping because it is defined by business co-ordination à la H&S and employee inclusion, which we shall define below.

This chapter critically interrogates the Coalition government’s Politics of Community (Robinson, 2008) agenda. Specifically, it looks at how the concept of The Broken Society is understood as the key hindrance to growth and prosperity and how the government proposes to solve this problem by empowering communities and local people via The Big Society. The chapter argues that this serves to legitimise both the politics of austerity and welfare retrenchment and a politics of discipline and criminalisation. By drawing on a theoretical framework inspired by the work of Loïc Waquant, this chapter highlights some of the devastating effects the Politics of Community agenda has had on the lives of women and in particular its effect on single mothers.

This chapter addresses the role of the social dimension in economic growth strategies, in particular in regard to the United Kingdom. In 2011, a meeting of international experts and senior technical officials from 16 different multilateral organisations concluded that the economic crisis had prompted a rethink of orthodox economic approaches to development and begun a search for alternative models (ILO, 2011a). Concurrently, there have been increased calls for a greater recognition of how social and economic dimensions intertwine for development (see, for example, Townsend, 2009), and demands for new models that better integrate economic and social policies. Such integration will, as pointed out by Jenkins (2010) and Ryder (2010), require new conceptual paradigms.