Having staggered through one recession—and without emerging the other side of it—Britain now seems destined for another. This time it will really hurt. A Martian arriving in London, or rather at the Mother of Parliaments in Westminster yesterday, could be mistaken for thinking that all of Britain’s economic woes can be laid at the door of a profligate Labour Government. Spend Labour did, but primarily to bail out the banks. It now seems that the rest of us will be paying for the bankers bubble for the next decade, with our taxes and our jobs,
Of course the outgoing Labour Government of Gordon Brown is not without its deep blemishes. It was ‘intensely relaxed’ about the Super Rich—or so one of New Labour’s architects, Peter Mandelson said. Which meant that the Exchequer did not re-coup an awful lot of tax, and more than that presided over tax avoidance on a massive scale. For only the little people pay tax, as we know. It wasted £11 billion on a continuing and fruitless war in Afghanistan, never mind the bars of gold thrown at the Iraq War or the plans to update Britain’s Trident nuclear submarines, which can’t launch their missiles anyway unless we ask the United States first. And then of course there were the massive ‘off balance book’ costs, still probably unknown, of what was known as the Private Finance Initiative – an inherited Conservative policy – that enabled Labour to spend mightily on public projects by contracting in the private sector. Costs were deferred for another day, and the Government’s balance books looked artificially better because of that. For a while everything looked hunky dory. Gordon Brown and his right hand man, Ed Balls, came back from Washington having met with Alan Greenspan and began to spout nonsense about ‘endogenous growth’. That to you and me, roughly translated, apparently means exponential, permanent growth. Brown even began talking of the ‘end of boom and bust’, as though he, and only he, had abolished the economic cycle.
Britain has now lived through nearly thirty years of neo-liberal economic policies, practised by successive Governments, until of course the banks collapsed through their own greed and the ghost of John Maynard Keynes was summonsed. Keynes knew that the best way out of an economic downturn, was to spend your way out of it, boosting demand and saving jobs in the process. Deficits could be paid back once the economy was in recovery mode. So, had Gordon Brown not committed a rapid about down turn as Wall Street and the City of London crashed, the British economy would have crashed with it. For one brief period at the depth of the banking crisis, we were, in Britain, hours away from the ATMs seizing up altogether.
Yesterday, it was back into reverse gear again. The new Chancellor of the British Conservative/Liberal Democrat, coalition, George Osborne announced savage spending cuts and an increase in taxes, including a whopping two and a half per cent rise in Value Added, or Sales Tax, a deeply regressive tax that will hit the poorest the hardest. This budget was designed, he said, to tackle the budget deficit, amidst media warnings that Britain could become “another Greece”. This despite the fact that Britain is very different to Greece – for a start people tend to pay their taxes here, and in any event Greece’s loans have to be paid back in shorter order than Britain’s deficit.
The new Government appeared to have modelled their new version of “shock therapy” on the Canadian model, pioneered by Prime Minister Chrétien in the 1990s, which saw a 20% cut in public expenditure. Chrétien was successful in rapidly reducing the deficit – which was not caused incidentally by runaway banks (the Canadians sensibly seem to regulate their financial sector). But that success was driven by the global economic growth of that time. Canada had markets, not least in the United States to export to. And while Britain’s’ export are now set to become cheaper, the weakness of the Euro zone suggests that there will not be a whole lot of exporting going on. Marry to this to collapsing domestic demand and growing unemployment, and hey presto, we are back on a very British slide to nowhere.
Britain’s return to full blooded neo liberal economics might be described in some quarters as a victory of the ‘Anglo American economic model’, a sort of weird voodoo economics mixed up with East Coast Puritanism and Scottish Calvinism. But this time the Americans aren’t really playing ball. Obama isn’t going to abandon the stimulus package that has boosted US demand, not is he going to be persuaded to drop some of those tariffs he has erected. No, Britain is on its own. The maxim will soon again be “Fog in Channel, Continent cut off”.
For years I listened to assorted free marketers, Conservatives and New Labourites wax lyrical about the success of the British economic model, when compared to sclerotic interventionist economies on the Continent, such as France. Even President Sarkozy risked falling for their siren calls when he was running for office. As soon as he got there though, he showed his Gaullist colours. France didn’t have a huge, out of control financial sector and France did – and still does – have major industrial sectors, vital to the economy, pump primed by the State where necessary, that are still World leaders and wealth creators.
Sadly, few people in Britain, in politics and the media tend to look much further than the Channel. They prefer to look across the Atlantic. But just now, no one on either side is looking our way.
Who can blame them?