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The UK “recovery” cannot be sustained. Osborne has failed to rebalance the economy and boost productivity

Productivity - multitasking workerAn Opposition Debate on Trade, Exports, Innovation and Productivity highlighted the fragile nature of our economic recovery. The fundamentals for a strong economy have been overlooked by a Government more interested in short term headlines than our long term economic interests.

The Government’s promise to “rebalance” the economy has not materialised with the UK now having record high trade deficits for 2014 and 2013. Our balance of payments, the amount we import compared to the amount we export, show a trade deficit of £34 billion. However, this figure is mis-leading and masks our trade deficit in goods, which stands at £123.1 billion.

The Chancellor promised to double exports to £1 trillion by 2020, however, he missed the target by more than £350 billion and at the current rate he will not hit his target until 2032. Productivity is also lacking behind, with the Office for National Statistics stating that the extent of stagnation in productivity is “unprecedented in the post-war period”.

Higher productivity is essential in determining our long-term growth rate, with stronger productivity leading to stronger growth. This would lead to increased tax revenues, reducing the government’s budget deficit. Towards the end of last year, productivity was just 0.7% above the pre-recession levels of seven years earlier.

The UK is lagging behind our international competitors, ranked sixth amongst the G7 countries and 20 percentage points behind the G7 average, the widest productivity gap since records began in 1991. After six years of austerity the government have failed to clear the deficit, and the fundamentals of our economy are weak to such an extent that even the Chancellor has warned of dangerous times ahead. Pointing to international threats, he failed to acknowledge the problems at home.

There has been a failure to rebalance the economy without enough emphasis on manufacturing and engineering which can create the export-driven recovery we need to succeed. Public investment remains skewed towards London and the South East, and while the government push for airport expansion in the South, HS2 from London to Leeds, and cross-rail in the capital, regions in the North struggle for investment in basic infrastructure in transport and broadband, holding back our development, despite being home to the manufacturing and engineering business that will drive forward an export led recovery.

The lack of any response to the collapse of the strategically important steel industry exposed the government’s lack of any genuine industrial strategy.

The rhetoric of the Northern Powerhouse is not met with any practical policies or support. While London benefits from seemingly unlimited levels of public investment, the Government fail to support not only traditional industry in the North East, but also emerging industries in East Durham. The Centre of Creative Excellence remains on the drawing board despite the potential to transform our area, delivering new jobs and training opportunities in export led industries such as media, film and digital technology.

At a time when we need to support workers to obtain skills and training to compete in an ever changing global economy, the government are kicking away the ladders of opportunity. Tuition fees are making higher education increasingly unaffordable and the change from grant to loans will only increase this debt for the poorest students. The government failure to support adult life-long learning has resulted in unprecedented cuts to adult learning budgets undermining the work of Further Education colleges.

The Government have not only failed on the fundamentals, but have presided over an unsustainable consumer driven recovery based on personal debt. While UK households were running a surplus of £70bn five years ago, today UK family finances are running a £40bn deficit. High levels of personal debt are damaging to individual families and the fabric of our society, affecting health, wellbeing and work.

The Children Society highlights the stress of debt problems affect relationships, children are more likely to struggle in school, and nine out of ten families with problem debt are forced to cut back on essentials such as food, clothing or heating in order to keep up with repayments.

The Office of Budget Responsibility predict that over the course of this parliament household debt will rise to 167% of household income, with the OBR going on to predict that debt levels in 2020 will exceed the levels of household debt before the 2007/08 financial crash. Such high levels of debt are not only damaging to the individual but also to the economy as a whole.

The Bank of England warns that high levels of household indebtedness is likely to have a ‘large adverse effect on aggregate demand’, adding that “high levels of household debt have been associated with deeper downturns and more protracted recoveries in the United Kingdom.” Time is running out.

We cannot continue to build an economic recovery on unsustainable and ever increasing personal consumer debt, because once that bubble bursts the collapse of family finances will also mean a collapse in the nation’s finances. The export driven manufacturing led economy is possible, however, it will mean tough decisions for the Chancellor who will have to move away from his comfort zone and over-reliance on the City of London. We need an economy built on skills and training, manufacturing and productivity, with a comprehensive industrial strategy that supports the real economy.

Image copyright: / 123RF Stock Photo

10 Comments

  1. David Ellis says:

    I don’t know if you noticed but not only is the economy not being re-balanced but the imbalance is getting worse. Thousands of steel jobs are going. In order to re-balance and compete with China it would be necessary to put British steel workers in concentration camps and work them until they died. This as you can see is a very short-term solution but the bourgeois class is not averse to short-termism. Ask the man who plotted the 10-year 1,000-year reich or George W Bush who gave us the New American Century that lasted 8 years.

    No, the only way to balance the global economy is through international agreements and international planning. All nations for instance need to agree on a common wage for workers in the steel industry where ever they are so that no nation’s industry or workers can be undercut. This is not going to happen this side of the world proletarian revolution and no reformist government is going to reverse or even touch or even slow down the corrosive impact of dying capitalism on the UK.

    1. Dave Roberts says:

      I think it’s a little naïve to expect a country like China which imprisons trades unionists and disappears the owners of bookshops to enter into multin national agreements on wages. There is nothing to stop you believing that it will however.

      Mean while back in the real world my company is experiencing a drastic shortage of skilled building workers in all the trades largely due to over twenty years of all political parties refusing to train apprentices and stressing computing and other key clicking jobs as the future.

      The claims of politicians to be going to solve the housing problem are lies unless the number of bricklayers in the country are doubled over the next five years. We can’t rely on Eastern Europe training them for us.

      1. David Ellis says:

        Where did I ever say that Chinese Stalinism will ever do anything for the international proletariat? Only in your mind because you read what you want to read not what is written. The Chinese state has been hiring the Chinese working class out as a gigantic scab labour force for twenty odd years now which is why Western manufacturing relocated there in search of cheap flexible labour.

        But here is the thing: trades unions are an attempt by workers to abolish the competition between themselves that puts downward pressure on wages but it is the competition between the capitalists that does for them in the end. Even if they achieve decent pay and conditions in one location it merely incentivises a capitalist to open up somewhere else paying less. This is why trade unionism is never enough and why the labour movement is socialist and internationalist in outlook. Soon the working classes of China and Europe will collaborate in creating entire global industries where wages and conditions are agreed and cannot be undercut. For that to happen it will be necessary to overthrow the capitialist states in Europe and for the Chinese workers to clear out the greedy bureaucrats. You can keep your `real’ world.

  2. swatantra says:

    Now, that’s what I call multitasking.
    A few more like him and the British economy would be making leaps and bounds.

  3. John Penney says:

    Superb article. If only we could get this succinct demolition of Osborne and the mass media’s bogus narrative of the UK’s supposed “economic recovery” over to the general public more regularly .

    I can’t help feeling that Jeremy needs to include some of the vital points made in this article in response to Cameron’s baloney at PMQ, when Dave as usual ignores Jeremy’s questions – in favour of a stream of lies and distortions feeding the bogus “Britain is booming” big lie.

  4. Mervyn Hyde (@mjh0421) says:

    The Idea we can trade our way in the world should be obvious is fundamentally flawed, we do not need to trade with the rest of the world, we should be looking at self sufficiency and specialised job creation.

    The first thing to understand is that governments can create jobs, develop new technologies, and manage an industrial policy, what is not happening, is the great white entrepreneurs who promised they would do it, aren’t and never will.

    1. John Penney says:

      I’m afraid the Autarkic isolationist “socialism in one country” development model didn’t work for the vast Stalinist USSR, and aint working well for the “hermit Kingdom” of North Korea today , or Cuba, – and it sure as hell isn’t possible for a relatively tiny economy like the UK.

      How can anyone with any knowledge at all of economics really believe the utter nonsense you have just written, Mervyn ?

      1. Laurie Rhodes says:

        Mervyn makes a fair point. Free Market / laissez-faire ideology has always argued that the alleviation of internal poverty comes about by pursuing external demand or growth. Since the 1980’s the term “export led recovery” has gone hand-in-hand with pithy wisdom of rising tides and expanding pies. The hope has always been that somewhere cross the sea will provide a new stream of wealth as the answer to our economic pains.

        As the Great Depression (1929) dragged on, part of the immense importance of Keynes was that he showed an export led recovery was not physically possible. The entire international community continued to cut spending, reduce wages and increase unemployment in the hope that lower prices and more “efficient” costs would lead to increased demand. Keynes highlighted that there wasn’t enough demand for goods and services anywhere to pull any country out of the depression…. at least, not demand from countries that had any cash!

        Keynes by any measure was a great economist and would have agreed with many of Mervyn’s comments. However, he still believed in the benefit of international trade and liberal markets wherever possible. But, he recognised that in a recession or depression (unavoidably caused by free-market economics), a government can invigorate production through internal instead of external demand. Roosevelt did this with electrification, most Labour governments have initiated large housing, education and healthcare programmes.

        Attempting to use broad free market ideas in creating an “export led recovery” was the failed policy prescription tried everywhere throughout the 1930’s.

        1. Mervyn Hyde (@mjh0421) says:

          Thank you Laurie, succinctly put. Here is some data that back up what we are saying, in all the years we have followed the nonsense associated with free trade (accepting that the does not mean we totally cease to trade with the rest of the world) but our manufacturing base continues to shrink, whilst we import ever more.

          This first article explains our predicament:
          http://quarterly.demos.co.uk/article/issue-4/britains-balance-of-payments-disaster/

          The next is a set of data sheets going back from the present over a ten year period:

          http://www.tradingeconomics.com/united-kingdom/balance-of-trade

          The question John needs to ask himself is, if everybody is trying to balance the books all at the same time, how do we export in a shrinking world market?

          I am of course not advocating that we stop trading with the world, but do recognise that it’s not so much us exporting but importing that is the problem.

          There are economists though that say it doesn’t matter for a sovereign currency user to pay out numbers for someone else’s finished goods (Alan Greenspan) as happens between the USA and China, in essence though that means China does have some leverage on the USA’s independence. But as a matter of fact economically the Chinese are still exchanging numbers for finished goods.

          Modern thinking economists recognise the limitations of trade in the west, this little video is a must for people to understand the transformation between east and west trade.

  5. Bazza says:

    Yes and I am old enough to remember the 60’s and 70’s when the trade deficit was the key issue on which Governments were judged on economic trust but over the years it seems with globalisation the trade deficit has been deliberately erased from public consciousness.
    Perhaps Osborne”s £10b a month from the Tory VAT increases from 17-20% (making us all pay) is just about keeping the economy afloat so Osborne is both VATMAN and ROBIN’!
    Yes we need state-led public investment and more innovative democratic public ownership in some industries with staff and communities having a say and providing better services meeting human need and some of us have dynamic ideas for these.
    Yes and more manufacturing but as a socialist I want shorter working weeks for those who may have to do dull and repetitive work (with strategies to vary work to make it more interesting for those that want this and who may want more say) and earlier retirement for manual workers but we should offer plums to the working class/working people – we should have 35 hour working weeks for all (leading to less) equally 30 hours for manual workers and we should oppose the increases in retirement ages to 68 then 70 and have 65 and 60 for manual workers.
    We should ask working class people/working people to give some of their power (votes) to Labour who will involve them in using the power and resources in society to make life better for all.
    And work with partners internationally so left wing democratic socialist forces in every country do similar things at the same time!
    It’s perhaps a working class thing but I do believe in hope!
    Footnote re Google -the UK Tory Govt got them to pay 3% in tax whilst the Centre/Left Govt in Italy got them to pay 15%! (Times 27/1/16) but still not enough. Solidarity!

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