It’s so much worse than Tony Blair thinks
A golden rule in politics is that anything badged as “radical” or “bold” is the exact opposite. Tony Blair’s much publicised essay on the future of the country has left this rule safely intact. In keeping with the New Labour tradition, the essay calls for a transformation of the economy, but without fundamentally changing anything. Britain under Blair’s programme would still be geographically imbalanced, dependent on high-value service exports and global finance to sustain a standard of living that we have not been able to afford for over 50 years. This is a cosmetic economic strategy. The patient will still be terminally ill, but at least it will look slightly healthier to keep up appearances on the global stage.
At the turn of the millennium, when the country was surfing a once-in-a-century expansion in financial service exports and eking out the last drops of a consumer credit boom, this cosmetic economics could be considered harmless. In an age where a fragile Britain faces significant financial and political challenges – and you are here – it is unforgivable.
Like so much of Britain’s political class, Blair is obsessed with policy gimmicks that do not address the fundamentals driving our decline: our huge trade deficit, our deep dependence on global finance, the collapse in British ownership of businesses, and our inability to create decent jobs outside of a handful of large urban centres. Blair, like much of Westminster, is focusing on marginal gains when the country is facing existential crisis.
Take the centre of the essay’s rallying cry, the AI revolution. Clearly there is a technological revolution taking place. However, the Office for Budget Responsibility estimates that AI will boost our productivity by 2.3 per cent over the next decade. Nobel Prize in Economics winner, Daron Acemoglu, argues that the productivity gains could be even lower. Historically, general purpose technological changes, like steam power, electrification, and ICT, take a long time to generate significant economic gains. The late professor Nicholas Crafts, expert on the Industrial Revolution, found that steam power only marginally contributed to British productivity growth in the 19th century. Perhaps AI will be more like the ICT revolution of the 1980s and 1990s, but even then the productivity gains were very short-lived and petered out after 2005. Any productivity improvement, however small, is welcome, but you cannot bet your entire economic future on it. In cash terms we are looking at between £5-8bn in additional growth a year – or just over £100 per person. All this assumes that these gains stay in the UK and that AI is not just a financial bubble, as some in Silicon Valley predict.
Or take another area. Planning deregulation. According to the OBR, reforms to the planning system are likely to add just 0.4 per cent to the size of the economy over the next decade. This bonanza, equivalent to a £20 per person, was predicted before the collapse in housebuilding caused by more prosaic issues such as a lack of skilled workers, the rising cost of materials and concerns that people would not be able to buy new homes.
More revealing than what is in the essay is what is ignored. The IMF projects a current account deficit of 3.4 per cent of GDP this year. In cash terms, this means transferring £4,063 per household overseas to pay for our imports, cover our debts and profits for overseas investors. At the heart of this is our widening trade deficit, predicted to hit £46bn a year by the end of the decade and driven by a £240bn goods deficit, which is growing at an alarming rate. To make up this gap and provide the money we need to invest in new infrastructure and enterprise, the OBR predicts that we will borrow £447bn from the rest of the world over this parliament – equivalent to 1.6 per cent of GDP per year. That is more than our entire economy is predicted to grow over the same period. A few data centres and a couple of additional corporate HQs are not going to make up for it.
In the world of Tony Blair, and much of our establishment, the food we eat, the goods we need and the finance we draw upon just arrives in the country. Like children on Christmas morning, they are too busy opening their presents to wonder where it all came from. In the real world, global capitalism forces those countries that cannot pay their way to hand over ever more of their income, their assets and, ultimately, their future, in return for the dollars and euros that we need.
These are not just abstract numbers. Our current account deficit means that we must allow free access to international investors to buy as much as much property as they like or risk spiralling inflation. These investors are driving up the price of assets, including housing, excluding hard-working families from the market. Our dependence on overseas finance has led to a continual sell-off of British businesses, reducing investment and, as Mark Carney once said, has made us dependent on the kindness of strangers “at a time when risks to trade, investment, and financial fragmentation have increased”. This is why every time there is a global shock, like the war with Iran, we come off worse than other countries.
It is these forces which are causing the political earthquakes that we are repeatedly experiencing. The decision to ignore our trade balance led to the deindustrialisation of the country which has hollowed out communities that are now willing to consider voting for anyone that can offer decent jobs and hope for future generations. The relentless rise in asset prices has seen at least two generations of young people locked out of the housing market and alienated from the traditional parties.
All this is symptomatic of a political class that will not face up to the problems facing the country. The reason why these huge numbers are barely discussed in SW1 is because if they were to be discussed, they would force a completely different, grimmer, political debate. Instead of giving people discounted theme park tickets in the middle of a Middle Eastern war, we would have to debate how we could increase household savings. We would be putting every additional pound into rebuilding domestic manufacturing, rather than discussing another bid for the Olympic Games. We certainly would not be wasting time on another circular conversation about rejoining Europe which was neither the source of our problems, nor the solution.
The frustrating thing is that the public are already there. Listen to any focus group or canvass any member of the public and they know the scale of the problems that we face. People repeatedly use the word “broken” to describe the country because we are broke. They know that Britain has been living beyond its means for 50 years and that the road back is going to be hard. What they want is a plan that is credible and that addresses the big issues. Judging by his essay, Tony Blair is not interested in that sort of plan. The real question is whether anyone will have the courage to level with the public?
[Further reading: One million Neets are a statistic, but every Neet is a tragedy]
