“The number one problem in this country, which everyone is feeling in their pockets, is a lack of economic growth”. That is what Liz Truss told me when Andrew Gimson and I interviewed her almost one year ago. She was right then, and she is right now.
That is not only because the latest figures suggest that the economy contracted by 0.1 per cent in May. This week has also seen two substantial developments in the ongoing quest to tackle Britain’s sluggishness : the launch of Truss’s new Growth Commission, and Civic Future’s Great Stagnation Summit in Cambridge (which I attended, despite personal reservations about that particular city).
That Britain has a problem with economic growth. As Simon Clarke pointed out in The Times this week, between 1970 and 2008, our economy grew at 3 per cent a year. Since the financial crisis, we have struggled to reach even half of that. That is, in Clarke’s words, “jobs that don’t exist, pay rises that can’t keep up, and services we cannot afford to improve”.
Consequently, British GDP per capita is around £15,000 less than it would have been had pre-crisis trends continued. It has fallen from being 77 per cent of the US figure in 2017 to only 70 per cent today. Without economic growth, we face stagnant living standards, and an ever-larger share of our incomes being swallowed up in perpetuity by the taxes needed to prop up our ailing public services.
Reversing this trend was the core objective behind Trussonomics. It is also the motivating factor behind the Growth Commission’s establishment. Convened by Truss, it comprises a group of thirteen international economists making the case for pro-growth reforms by assessing current and future government policies through the lens of their implications for improving our productivity and raising both national and personal wealth.
In its first report, led by Douglas McWilliams (an economic consultant), the Commission charts the slowdown in the growth of GDP per capita across much of the developed world in the last two decades. The UK performs particularly poorly, being “one of the few international economies where GDP per capita is actually falling.” Poland could overtake us within the next decade.
The data is stark, but the real question is to ask what can be done about it. The Commission plans to use a new economic model to forecast how fiscal and regulatory changes will affect growth over the next five, ten, or twenty years. The modelling will be an explicit challenge to that currently employed by the Treasury and Office for Budget Responsibility.
After her own brush with the forces of fiscal orthodoxy, it is no surprise that Truss is interested in providing a second opinion: especially if it is one, she hopes, that will vindicate her economic vision. Any new organisation or institution that highlights our growth problem and provides pressure to address it is welcome.
But one cannot help but feel that some of its key supporters are hoping for a reason to say “I told you so”. The trouble that Truss has is that however worthwhile the Growth Commission may be, it cannot escape the £161 billion elephant in the room. Since our brief flirtation with Trussonomics, ministers have been unable to avoid making lip service to economic growth. But the authority of those involved in the experiment itself has been undermined.
Truss, Kwarteng, their allies in Parliament, Tufton Street, and beyond: all will forever be associated with the turmoil of those few short weeks in the Autumn of last year. They are tied to surging mortgage rates and a falling pound. They cannot escape the market chaos, the successive u-turns, and her eventual resignation.
This has only been compounded by the Bourbon approach taken by Truss to her fate. Those who once giggled at lefties who said ‘real’ socialism had never been tried now seem to argue the same of Trussonomics. They appear unwilling to admit the harm that their time in government did to the free-market cause, or that the policies for which they so long campaigned were found wanting.
Which is why, alas, the important work that the Growth Commission might do is only hampered by its association with her – and why, of the two new organisations debating our decline this week, it is Civic Future to which we should pay more attention. What impressed me about Munira Mirza’s new initiative a few months ago remains true now.
The objective behind Civic Future is, quite simply, to identify the causes of Britain’s decline, and to find the route to reverse it. That is both through a series of public events like the summit, and through identifying and training up the next generation of potential thought and political leaders. That means looking beyond Westminster’s old lags to broaden out the conversation on stagnation.
The Great Stagnation Summit therefore aimed to bring together politicians and thinkers from both the left and right to discuss what drives innovation and productivity increases. Headed up by Tyler Cowen – the American economics professor and author of, ahem, The Great Stagnation – panels covered topics ranging from asking whether the rate of innovation has stalled, to looking at the UK’s position historically and internationally, to the implications of AI.
Discussions were wide-ranging. Amongst the usual fulsome agreement over the importance of planning reform participants also asked broader questions about the importance of technological innovation for growth, the role of the state in fostering that growth, and whether any British hopes of being forged in the “white heat of [the technological] revolution” were out-dated fantasies.
In an age of deglobalisation, where the structural advantages and market liberalisations of recent decades are being rolled back, and where great power conflict, resource scarcity, and technological dystopia loom, peddling the same old snake oil of a tax cut here or there just won’t wash. The conference was useful in considering how economic liberals can adapt – and in bringing together a range of voices that one wouldn’t describe as the usual suspects.
If we are serious about getting our growth rate up to 3 per cent – as the Growth Commission suggests – against a darkening international backdrop, these are the sorts of questions we should be asking, and the shibboleths we should be challenging. That is not likely to be the case if the discussion of growth is led by those looking first to refight the battles and bathos of last autumn.