• Immeasurably Better?

    It was only to be expected that David Cameron, in his farewell speech on the doorstep of Number Ten Downing Street, should have permitted himself a little hyperbole about his achievements as Prime Minister.  Even so, his assertion that he had left the economy “immeasurably stronger” than when he had taken over, was taking a few liberties with the facts.

    He supported his assertion by pointing to the reduction in the government’s deficit and to increases in the number of those in work and in the number of businesses.  But the reduction in the government deficit was achieved only at considerable austerity-driven cost and following the longest recession of modern times and has not prevented the government’s total debt from continuing to rise.  And the increases in the numbers of employed and of businesses were a function of an increased population rather than of any uplift in productivity.

    It was what he did not mention that had greater significance.  He did not mention the deficit that really matters – the country’s failure to pay its way that dates back all the way to 1982 and has been largely driven by the deficit in our trade in manufactures with the EU.  It is that deficit that has forced us to borrow from overseas and to sell off hundreds of billions of pounds’ worth of assets so that we can balance our payments.

    Nor did he mention the huge decline in our manufacturing industry, so that it now accounts for only 10% of our GDP, the lowest proportion of any advanced industrial economy.  And he failed to mention the fact that our net investment in new manufacturing capacity is approximately nil, placing us at or near the bottom in international terms and providing a dismal signal as to our capacity to improve our future performance.

    It might be hoped that one promising sign for the future is the departure of George Osborne from the Treasury.  Osborne was the archetypal instance of the Chancellor whose political convictions far outweighed his limited knowledge of how the economy works.  The driving motivation behind his tenure was the ideological goal of reducing the size of government so that the “free” market could take over yet more of our economy and our society, seek out more profit-making opportunities, and operate with a minimum of interference from government.

    But any hope that we might expect an improvement in that respect will, sadly, have been dashed by Theresa May’s appointment of Philip Hammond as her Chancellor – not that she had a wide range from which to make a choice.  Hammond’s appointment typifies one of the central weaknesses in our system of government.

    Hammond seems to be, on his record, a competent but dull operator – just, some might say, what is needed at the Treasury; he was, after all, a competent but dull Foreign Secretary – the classic “safe pair of hands”.  But a careful scrutiny of his career, both before and after entering Parliament, reveals no more than a nodding acquaintance with economic policy.  Like so many of his predecessors, therefore, he is entirely at the mercy of the advice he receives from his civil servants at the Treasury.  Like George Osborne before him, his principal qualification for allegedly running our economy is political prejudice rather than economic expertise.

    It is, therefore, extremely unlikely that he will ever feel able to do more than indicate in the most general terms the political objectives he hopes to achieve.  Beyond that, he will do as he is told.  There will be no attempt to escape the constraints of orthodox policy, with all of its emphasis on restraining the role of government, or to keep pace with the new thinking about economic policy that is now becoming evident in the post-GFC world.  The possibility that a new Chancellor might actually, in his or her own right, have something new or interesting or potentially valuable to say about the direction of policy will once again run quickly into the sand.

    None of this is Philip Hammond’s fault.  It is the outcome of a system that simply does not recognise that politicians should be expected, as they take up the office of Chancellor, to bring to bear some semblance of personal knowledge and competence to help them in discharging their responsibilities and in setting the direction of policy.

    The prospect is therefore that, when Theresa May and her Chancellor face the electorate, whenever that may be, the report card will read much as David Cameron’s and George Osborne’s has done.  There will be much emphasis on supposed financial prudence and on only partly successful attempts to reduce government deficits and debt; but this will all be against a backdrop, from which the gaze will be steadily averted, of a further and remorseless comparative decline in the productivity and output of our economy, and in the health and integrity of our society.

    Bryan Gould

    14 July 2016