Today we launch a new series on ideas for reshaping the UK's dysfunctional economy, centering on the new Civitas pamphlet from economist and businessman John Mills.
Despite a particularly magnificent housing bubble blown by Chancellor Osborne and the City, the UK economy is still a basket case and its future prospects are dire. The picture would look very different if only we could implement an economic programme that increased employment, increased wages, increased productivity, improved our trade balance, increased our investment levels and delivered growth of 4-5% per annum. John Mills has proposed just such a package. But is it feasible, and would it work?
We have today published John Mills’ new Civitas pamphlet, There is an Alternative, so that readers can examine his argument in full. But in brief:
Neither our trade nor budget deficit are an insurmountable problem as long as they are smaller than our rate of growth. Realistically, the UK needs a growth rate of 4-5%, significantly higher than the Coalition has come close to achieving. This will require a big increase in aggregate demand which must be delivered without unmanageable levels of inflation.
How is this achieved: firstly, the trade balance must be greatly improved and investment substantially increased – our current level of investment is on a par with El Salvador, a stark reminder of just how short-termist and dysfunctional our economy has become. The exchange rate must be brought down with that in mind, and infrastructure—roads, high speed broadband, rail access—must be modernised and improved. Finance will be required to move away from easy wins in the housing market to sound investment in British industry and commerce. The labour force will need to expand, drawing on Britain’s vast pool of unemployed or under-employed, but labour’s bargaining power will need to be simultaneously improved relative to employers’. This is a tall order and there will be many disagreements on its feasibility, some more pertinent than others. At Mills’ launch event, for instance, a young Goldmans chap seemed confused why Mills thought there was any need for drastic action since the UK economy is in such great shape. That Goldmans views the economy so is itself indicative of some of the political problems any such programme will need to overcome.
In a new OurKingdom series, There is an Alternative, we’re going to be examining the Mills plan—and its potential pitfalls--as well as other ideas for radically reshaping Britain’s spluttering economy. To kick off, you can read Mills’ pamphlet, There is an Alternative, here.