The chancellor’s vision of capitalism has failed. We need a new model to relieve consumers and business of fear and debt
It is hard to decide which is more worrying – the desperate economic conditions through which we are living, or the poverty of imaginative thinking about what to do. The current consensus is that it will only be in 2014 that Britain’s output will have climbed back to where it was in 2008, and after that progress will be painfully slow. It cannot be repeated too often: this is the worst economic performance for more than 100 years.
Economists cloak what is happening in technocratic language – the economy is slowly “rebalancing”, going through “structural adjustment” while there is need for “fiscal consolidation”. But there is a different language to describe what is really happening. Britain is displaying acute economic dysfunctionality. It is a crisis of under-consumption, over-accumulation, under-production, acute inequality and under-investment. It is what commentators on left and right would have described in any year between 1890 and 1980 – before the free market “counter-revolution” took off – as a first-order crisis in capitalism.
It is against this background that this week’s autumn statement must be interpreted. The chancellor, a child of that revolution, has consistently underestimated the gravity of Britain’s predicament. He essentially believes that markets, if left to their own devices, organise themselves optimally and the state should keep out of the economy. He believed the risible economic forecasts delivered by both the Bank of England and Office for Budget Responsibility in June 2010 that the British economy, after its flirtation with financial collapse, would be back to normal by now. Markets and the private sector, if left to themselves, would deliver.
They could not and have not. Wednesday is Osborne’s last chance to get the economy moving decisively before a 2015 general election. He will announce that tens of billions of pounds of infrastructure projects and bank lending will be brought forward. But these will be phantom billions that are not part of the public budget, but conjured out of thin air by government guarantees – the track record of which is astonishingly poor in stimulating activity unless coupled with other measures to lift demand and genuinely curtail risk. More cash will be on the move as he follows the Heseltine review recommendations and parcels up the authority to spend £58bn of Whitehall money in Britain’s regions – doubtless billed as the greatest ever act of financial devolution. Real billions, however, will be cut from welfare budgets.
These figures will make our heads spin and seem like real action – but it will be sound and fury that signifies little, the hallmark of the Osborne chancellorship. For very little of it addresses the heartland problems. British business investment, always thin, is at chronically low levels. The pace of innovation is weak. Few companies want to take risks and scale up production. British citizens are rightly fearful about their country and the lack of vision about where we might go; they are not spending but saving – and a growing proportion are voting Ukip.
Britain needs a revolution in how our companies are owned and financed and in the framework in which innovation takes place. It needs a smart economic policy in which our monetary, fiscal and financial levers are pulled to work in synchronicity and where the objective is to lift the growth of output and prices.
We need to relieve consumers and business alike of fear and debt. We need a vision of a different capitalism with different values. The old model has failed, along with the thinking that generated it. Osborne’s phantom billions will not change that one jot.