Creative destruction

How not to grow the economy

philmullan Creative destruction, Economic growth, Economic policy, State intervention, Zombie economy

Despite the many legitimate criticisms of the short-lived Liz Truss administration, it did leave one exceptional legacy. It put the question of economic growth, and the importance of raising productivity, back on the mainstream political agenda.

It took an extraordinary triple whammy – the pandemic lockdowns, the post-lockdown disruptions to global supply chains, and the war in Ukraine – to finally force the British political class, in the shape of the Truss administration, to acknowledge the dire state of the economy.

Hence, over recent months, Conservative and Labour front benches have been talking about the importance of growing the economy. In January, prime minister Rishi Sunak announced five key pledges to address people’s ‘priorities’. The following month, Labour leader Keir Starmer countered with his ‘five missions for a better Britain’. A commitment to economic growth was at the centre of both parties’ five-point plans.

Both plans have been criticised for vagueness. But there is a deeper problem with Labour’s and the Tories’ approach to the productivity slump. While both parties have bought into the new economic consensus – that is, the belief that low business investment is at the root of lacklustre growth – they also share the belief that businesses need more state financial support. In today’s circumstances, though, this would mostly act to entrench the low-growth quagmire.

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Why Trussonomics imploded

philmullan Creative destruction, Economic growth, Economic policy, Politics, Productivity

As the Conservative Party descends into chaos again following Liz Truss’s resignation, can we draw any lessons from the failure of her plans for the economy? How should we understand the now-abandoned ‘Trussonomics’? And could it have made any real economic difference, if it had been given the chance?

One lesson is that whoever emerges as the next prime minister is unlikely to solve our problems. This is not just a reflection on the individuals involved. Any new leader, regardless of their economic insights and thoughts, is likely to be caught in the stranglehold of Westminster. Over several decades, the political class has absorbed the undemocratic notion that governance is a process of delivery, rather than of leading and persuading people about how things might be changed for the better.

Truss’s government failed to understand that the only audience that it should be accountable to is the electorate, not the fetishised ‘financial markets’, the International Monetary Fund (IMF) or the Office for Budget Responsibility (OBR). Not that Truss or her legion of critics understood this.

The fatal flaw of Truss’s brief administration is that having sensed that a growth plan would be disruptive, Truss and her team failed to lead the UK through those great upheavals. They failed to bring the people with them. This was a dereliction of democratic duty. People aren’t going to put up with ‘disruption’ as an edict from Downing Street. They can’t be expected to just go along with it. They need to understand the reasons for the economic tumult. Ultimately, they need to understand why it is necessary to reorganise and rebuild production anew.

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We are lurching from crisis to crisis

philmullan Creative destruction, Economic policy, Inflation, Productivity, The longest depression

The cost-of-living crisis is not just a question of increasing prices. The reason the current inflation can be considered such a crisis is that the UK has not been creating enough wealth for people to afford these higher prices. And while the recent dislocations and disruptions caused by the lockdown reopenings and the Russian invasion of Ukraine have had a huge impact on prices, the British government still seems incapable of acknowledging that things were not going well economically both before the war and before the pandemic.

Even when the current rapid pace of inflation eventually slows, many households will still be struggling to meet those higher prices of essentials like food and energy. And even if those particular costs began to subside, many people would continue to live on the edge, until the next shock sends them deeper into privation. These scenarios reveal that today’s cost-of-living crisis is not just a product of price increases.

Why have the increased costs become so unbearable for so many households? Why is there so little capacity at an individual, business or societal level to cope with these price spikes? Without addressing these historical issues underlying the current hardship, we are likely to see a continuation of crisis management rather than a durable fix.

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Who will save Britain from its never-ending slump?

philmullan Creative destruction, Economic growth, Economic policy, Investment, Productivity

The huge hole at the centre of the Autumn Budget goes beyond any of the fiscal measures announced. The substance of the statement made clear that this government’s bold talk about economic renewal does not translate into a serious pro-growth plan that might address the fundamental challenges of low investment and poor productivity.

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How to bring about a high-wage economy

philmullan Covid-19, Creative destruction, Economic growth, Economic policy, Employment, Productivity

According to some pundits, the empty petrol stations and gaps on supermarket shelves are a forewarning of another ‘winter of discontent’ – a reference to 1978-9, when widespread strike action brought the UK to a standstill.

In the energy crisis, some see a return to the oil crisis of 1973-4, when OPEC imposed an oil embargo on the likes of the UK and the US because of their support for Israel during the Yom Kippur War.

And, as prices rise across the board, there is a great deal of speculation about a return of 1970s-style ‘stagflation’, when economic stagnation co-existed with sharply rising prices, precipitating a cost-of-living crisis.

As evocative as these trips down economic memory lane are, they do not help us understand what is going on today. The general fashion for reaching for old labels, such as new New Deals or new Cold Wars, to describe the present often obscures what is distinctive about the contemporary moment – and this certainly applies to our current economic situation.

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