Creative destruction

The tax-cut delusion

philmullan Economic growth, Creative destruction, Economic policy, Politics

A second article suggesting a different approach to the UK’s 6 March spring Budget.

Many in and beyond the Tory Party seem to believe that lowering taxes is a cure to our economic ills. It’s time these tax-cut proponents stopped kidding themselves about the economic effects. A cut in personal or business taxes will not re-energise Britain’s entrepreneurial spirit or resolve its high-debt, low-growth malaise. The barriers holding back investment and innovation won’t be overcome with a reduction in income or corporation or inheritance tax. Britain’s economic slump is deep and protracted.

Yes, we can legitimately argue for lower taxes from the perspective of personal freedom. But lower taxes won’t raise productivity levels. That can only happen through the restructuring of our economy, by shifting resources away from low-productivity businesses into higher-productivity businesses that can provide better-paying jobs. That will require a wave of creative destruction, not fiddling with tax rates.

Read the full article here.

Why industrial policy isn’t working

philmullan Creative destruction, Economic growth, Economic policy, Politics, State intervention

There can be good reasons for governments to pursue a so-called industrial policy – that is, a policy that sustains or develops certain industries in order to achieve national goals. In less developed countries, an industrial policy can help develop foundational industries, such as energy or food production. In developed countries, a government might pursue an industrial policy during wartime, providing financial assistance to armaments producers.

But in Britain today, there are several compelling reasons for not pursuing an industrial policy. Excessive corporate welfare is sucking the dynamism out of the UK economy. As things stand, government efforts to shape and direct industry are slowing growth, encouraging corporations to depend on state handouts and distracting from the core role of the state in providing decent public services and infrastructure.

Read the full article here.

The economic change we need won’t come from Labour

philmullan Creative destruction, Economic growth, Economic policy, Politics, State intervention

Following the UK Labour Party’s annual conference, which wrapped up last week, we now have a better idea of its economic plans. Though plenty could still change before the next General Election, it’s clear that Labour is not planning to offer an alternative to the existing Conservative economic programme. Essentially, what leader Keir Starmer and shadow chancellor Rachel Reeves are promising is the same old muddling through, but without the Tory ‘instability’ and ‘chaos’.

Indeed, in content, Labour’s policies are very similar to those already in operation. And since these policies have done much to keep Britain stuck in an economic depression, this portends a dismal financial future for most of the population. At the heart of the problem lies the quest for ‘economic stability’.

Read the full article here.

Phil Mullan will be speaking at the Battle of Ideas festival in London in the session, ‘Bouncing back or basket case? The state of the UK economy’, on Saturday 28th October.

The slow decay of the British economy

philmullan Creative destruction, Democracy, Economic growth, Politics, The longest depression

The sense that Britain isn’t working anymore has too many facets to shrug off as undue gloom and doom, as the current government tries to do. The significant thing about all the shocks that have hit Britain’s economy in recent years is its relative lack of resilience. Compared to its developed peers, Britain has been less able to cope with external blows, and been slower to pull through.

Why is the British economy stuck in this rut? The historical economic explanation is not hard to fathom. Britain’s peculiar decrepitude is founded upon a greater dependence on aged capital in both the public and private sectors. But this historic atrophy in production and wealth creation doesn’t explain why so little political effort has gone into attempting to shake up its unusually outdated structures. Specifically, why has Britain’s political class of all stripes been so reluctant to make the hard choices needed for a better future?

Read the full article here.

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.

Read the full article here.