Economic growth was never a simple concept, but it has become particularly confusing in recent weeks. The Prime Minister has a Plan for Growth that is apparently opposed by an anti-growth coalition, of which she and her new Chancellor Jeremy Hunt may now be part, given that she is u-turning on her own plan.
Brexit negotiator turned prophet of the Conservative right, Lord Frost, has declared that the anti-growth coalition may turn the UK into East Germany. Other free market thinkers are distancing themselves from the government and indeed the Conservative Party.
Meanwhile planning reform, one element of a growth plan, is widely supported by many younger people across the political spectrum who believe their housing travails are due to blockages imposed largely by elderly Conservative voting homeowners. Add in the preference of many for rejoining the EU, and they argue this is the real growth plan, and the government the real anti-growth coalition.
Step back for a moment. Economic growth, the production of more goods and services per person, is traditionally considered essential in enabling people to have a better life. As an example, hundreds of millions of people have been lifted out of poverty in China in the last 40 years.
Nothing like it since 2008 crisis
Opinions differ as to what is a reasonable rate of annual growth for a country such as the UK, but whether 2% or 3%, we haven’t been achieving anything like it since the financial crisis of 2008. Few economists believe this government’s future target of 2.5% will be met soon either.
In part, that is because in the modern globalised economy you can’t fully divorce one country’s performance from the overall trend, which is rather negative. The EU has been badly affected by rising fuel prices resulting from Russia’s invasion of Ukraine; China’s growth is slowing due to a combination of factors (zero covid, government suspicion of powerful business, and a serious debt-overhang particularly on housing), while the US seems to be headed for at least some period of recession.
Whisper it quietly though (as the kind of challenging thinking that is never popular) but the more important reason why the UK has not been growing particularly quickly might be that there isn’t actually strong support for this as a policy objective. When people are making their political decisions, growth is not their main driver.
Most obviously, whatever drove the EU referendum result, whether it was a fear of immigration or a supposed loss of control to Brussels as lead candidates, it certainly wasn’t a vote for economic growth. Project Fear may not have been completely believed, but it was the losing side that were campaigning on the economy.
GDP: who stands to gain? Not the workers
A heckler at an EU referendum debate who cried out “That’s your bloody GDP. Not ours”, spoke for many people, who assumed they didn’t need or wouldn’t benefit from economic growth. Many people, whether elderly outright homeowners or young people at the start of their careers believe they will never do so.
Distribution of GDP is undoubtedly an issue in the UK, with a sense that workers get a rough deal while companies and property owners do very well. The suggestion that the new growth plan was to rely on trickle down, of making the already wealthy more so in the hope they passed that down, showed complete unawareness of people’s suspicions on that count.
Suggestions of undermining environmental protections similarly appeared deaf to the concerns of so many particularly young people about the future of the planet. For many, growth is less important than environmental sustainability, for we can redistribute money… but have no second planet to fall back on.
We can redistribute money… but have
no second planet to fall back on.
Growth and the environment don’t have to be enemies, just as the current distribution of national wealth isn’t fixed in stone. But pitching one against the other was an explicit part of the Truss government’s growth plan.
Evidence linking tax cuts and higher growth is unconvincing, not least as so many countries wealthier than the UK have higher personal and corporate taxes. Suggestions that environmental and other regulations impair growth is even more questionable.
Supply-side reforms, distinguished from the previous Keynesian approach of government managing overall demand in the economy to maintain growth, were the intellectual fashion of the 1980s, and with good reason. In too many areas there were outright restrictions on supply, whether through monopolies, trade union closed shops, or other prohibitions. Removal of such barriers generated economic gains through greater competition, just as the European single market did so on a continental scale.
From supply barriers to rule-based benefits
Market-restricting regulations were often replaced with those ensuring a level playing field between suppliers, while the demands of consumers, businesses, and politicians in democracies has meant nearly all products or services are subject to various rules. These variously protect workers, consumers, or the environment, and have dramatically reduced harms.
Arguments that removing these regulations will lead to economic growth can be simply if tragically answered with reference to Grenfell Tower, where substandard products meant deaths and a repair bill of billions of pounds. Regulation is a now an essential part of all developed countries, and rightly so.
Regulation is a now an essential part of all
developed countries, and rightly so.
Improvements can of course be made to regulations, just as they can be to other parts of the supply side such as immigration, skills or planning. It is however important to be clear what we are wanting to achieve. With regard to housing in particular there is confusion as to what housing should be built where, in what density, and by whom, which seems to end in a generalised howl of frustration about selfish opponents or the overall planning system.
Underlying all of the discussions about growth is the simple truth that for a modern developed economy, there are no easy answers. There is no magic pie that can be grown if cooked the right way; no new technologies to be easily deployed; no simple regulations to remove. There is only careful consideration of complex problems, and hard work.
In EU or not, growth problems remain
Complex realities are of course almost the last thing that politicians want, not least those who promised a different UK if we voted to leave the EU. Similarly, for those wanting to rejoin, yes there would be the kind of one-off economic boost that reversed the hit of the last few years, but it would still leave a longer-term growth problem.
Without a better understanding of our economic position and political interests, however, there can be no sensible debate about where we go from here. Which is why there is currently no real growth plan or anti-growth coalition, just a lot of incoherence.
Boring it may be, but for the UK right now just some stability and maturity is the start of a real consideration of growth. There are a lot of possibilities, which a skilful government – whenever we next have one –could turn into a programme attracting support. But there are also an awful lot of potential pitfalls.
