According to our politicians and most of the media, the central problem facing the British economy is a lack of growth. We need growth, we are told, to pay for this or that public service, or good wages, or housing. Just this week it was reported that the chancellor would need to plan further cuts in expenditure as a result of the Office for Budget Responsibility downgrading the UK’s growth prospects.
But we should beware framing the lack of growth as the main affliction. In any case, the solutions to the growth problem have been tried and largely failed, whether the austerity of the Cameron years, the tax cuts proposed by Liz Truss and Kwasi Kwarteng or the innovation promised by all governments since the 1990s. The problems of the present are genuinely novel, and require not so much growing the British economy as transforming it.
Since the great financial crisis of 2008, the UK economy has grown very slowly by historical standards. This has been widely discussed by economists, who have cited a stagnation in productivity, which means GDP per person, or per hour worked. The low level of labour productivity growth, some 0.5% per year between 2008 and 2020, is indeed unprecedented in British economic history since the 18th century.
Yet as far as public discourse was concerned, this fall in productivity growth was long disguised by a deluded revivalism according to which the economy had become so successful that it could take its leave of Europe, and take on the world.
After the general realisation that Brexit has made things worse, and that the real wages of public sector workers are collapsing, along with the services themselves, that fantasy appears to have dissolved – and political commentators have now turned back to lamenting the problems of the British economy. But as the economic historian Adam Tooze has correctly pointed out, political analysis has not yet taken on board either the extraordinary longevity and novelty of Britain’s stagnating productivity, or the partly separate fall in living standards that so many people have experienced.
Instead we are falling back on old and inappropriate analyses. Politicians speak of the need to grow the metaphorical pie before we can all get a piece of it. The problem here is that we need to update our analysis of the relationship between productivity growth and equality. They once grew together: as the economy grew, so did workers’ share of a rapidly growing pie. But that link was broken in the 1980s. Whether the economy was stagnating or growing, the rich have been taking a bigger slice of the cake for decades now.
Consider this thought experiment. One way to increase the rate of growth of the British economy, and increase equality, would be to reverse the economic history of the last 50 years and return to the economy we had in the 1970s. Of course, that is not possible, or desirable, but it does make the point that the dynamics of the economy have changed. As well as a crisis of productivity, we face a mounting crisis of wealth inequality and income misdistribution, not least in the hugely unequal housing wealth that was caused, in part, by our model of economic growth. This needs urgent action, irrespective of whether the economy grows or not. Indeed, we may find that direct redistributive measures to deal with these problems will themselves stimulate productivity.
The old declinist panaceas, which featured so prominently in previous periods of concern about growth, are with us again. In the past, as today, declinism was accompanied by calls for austerity, wage cuts and the loss of workers’ rights. The demands of the cruel world supposedly demanded belt-tightening. This is a key reason why I have long argued against the temptations of declinism for the left. But there are other, more appealing, declinist theses that are wrong, too, such as Rishi Sunak’s bathetic proposal for compulsory maths education till 18, or the need for more entrepreneurs, and more competition, and more globalisation, all of which would supposedly put the UK in the lead once more. Our culture is saturated with cliches dressed as innovations. Indeed much of what has happened to the economy and to society since the 1970s has been driven by old policies – tax cuts, policies to stimulate entrepreneurship – that were supposed to reverse the decline.
An even graver problem than the failure to grow is that we can’t afford more growth of the current sort. Twenty-first century growth still means more cars on the road, more flights, more concrete roads and runways, more plastic and more greenhouse gas emissions. What’s needed is change: radical changes in the size of different industries, and in the nature of many. Are we ready to imagine a smaller aviation sector, fewer cars and fewer cattle farmers? A green Industrial Revolution means more of some jobs and fewer of others. Whatever the average overall growth rate, we need structural change, transformation from which there will be winners and losers.
Labour is calling for a greener, more national economy, a more unionised labour force and more attention to the everyday, foundational economy. As Michael Jacobs has pointed out, its policies are in these respects very much closer to those of Corbyn’s Labour than New Labour.
But the political presentation points in a very different direction. Labour has publicly adopted a pro-growth, austerity-till-we-get-it position. It has sung the praises of “sound money” and seems to dream of once against achieving British leadership in hi-tech through entrepreneurship. It is claiming that what we have seen over the last Tory years is inaction, “sticking-plaster politics”. This is too tempting a thesis: it is true that, in contrast to the politics of spin and gesture, we need a politics of real change rather than hype, of really building hospitals rather than lying about them; of really decarbonising rather than spinning technical fixes.
But the “sticking plaster” rhetoric actually disguises a serious problem for Starmer. The Tories have hardly been inactive since 2010: they have pushed through huge cuts in much of the public sector (while recently increasing public spending overall) and utterly transformed the nation through Brexit. They built on the politics of Margaret Thatcher, John Major and New Labour. Indeed we need to understand that all the governments since 1979 have been transformational – it is their actions, not supposed lack of action, that we need to understand. What is needed now are different sorts of actions, pointing in different directions, not more of the same pretending it is novel. More of the same will simply deepen our problems, not solve them.