The Bank of England has revised upwards its growth forecast for the UK in 2017 to two per cent and I find that a bit surprising as it’s a bit like predicting the Titanic will arrive in New York ahead of schedule when its already too late to turn and miss the iceberg ahead. The Brexit vote impacted on business confidence, increased uncertainty and devalued Sterling but Brexit’s economic impact hasn’t been that big so far, for four main reasons.
Firstly, it hasn’t actually happened yet and won’t for another two years. Secondly, we don’t yet know what the UK Government negotiators’ stance will be. There was never any danger of Westminster blocking Brexit but there is an outside chance that amendments to the bill may bind the UK Government to remaining in the customs union or seeking to avoid product tariffs, significantly improving the UK’s economic prospects. Thirdly we don’t yet know how flexible the EU negotiators will be.
“No four freedoms, no single market access” seems pretty inflexible but that doesn’t mean there isn’t a better deal to be done than an ultra-hard Brexit with all trade with the EU under WTO rules. For example, product tariffs hurt both sides and the EU would welcome a deal that avoided tariffs but then seek to punish the UK elsewhere, possibly through restricting financial passporting for the City of London.
Finally, the currency devaluation has reduced the buying power of the pound which will filter through into price rises, especially on imported food and electronics products. International suppliers are pressurising manufacturers and retailers to accept big price rises across the board and inflation at a time when confidence is low, uncertainty high and personal debt sits at unsustainable levels.
This may cause a significantly heavier drag on consumer spending than traditional BOE forecasting would expect. So we won’t know how much the “actual Brexit” will impact on the economy until the negotiations end, or until one side starts to tactically leak how badly the negotiations are going and that could start a 2017 panic.
The other problem is that the growth we are seeing in the UK is the wrong sort of growth. The dominant economic philosophy of the last two generations failed with the banking crash and the global economy was only saved by multiple government interventions, an act that in itself turned the term laissez-faire economics into an oxymoron.
However nothing has replaced neoliberalism and so western governments are still using failed growth-led thinking to plan our economies. Is the economy growing? Is the stock market up? Are the rich getting richer? Yes, then everything must be returning to normal! Yet this narrow definition of economic success is exactly what pushed the world economy to the brink in the first place.
We need to ask: Just what or who is the economy for in the first place? The current system offers lip service to shared prosperity, but at its core completely fails to recognise that the purpose of economics should be the distribution of assets and wealth to create the maximum wellbeing in all society, and so a system that creates inequality ipso facto was a failing system even before the crash.
Right wing neoliberal governments wanted to create growth through light-touch regulation and crucially changed the rules of corporate governance embedding shareholder primacy as the master of all decision making. Thus enabling large company takeovers that lessened the corporate social responsibility and community involvement. This system created growth, but also boosted the economic dominance of large corporations who had a focus on cost cutting and keeping wages low, outsourcing jobs abroad and, given their international nature, transfer pricing, effectively assigning profits to operations in lower tax locations and lowering UK Government revenues.
Politicians papered over the cracks with platitudes that bore no relation to policies they implemented; Thatcher quoting Francis of Assisi, George W Bush’s renewal of caring capitalism, Cameron’s Big Society, concepts such as trickle-down and now May with her acknowledgement of rising inequality has surprised many, but she is singing from the same empty hymn book.
We need to refocus corporate governance towards recognising the benefits businesses have to their workforces, environment and community and we need to build new higher added value manufacturing and allow smaller businesses that naturally benefit society to flourish alongside the large corporations by proactively levelling the playing field. Shareholder primacy combined with light touch regulation reset the entire culture of the economy encouraging excessive risk taking, rapidly rising executive pay as a reward for cutting wages and unsustainable cost cutting for short-term profiteering.
We got growth, but growth that wasn’t worth the cost, growth that was never sustainable and growth where the benefits were shared with only a small cross-section of the population. Yet the mass population were still the main driver of economic growth through their consumer spending, consumption of services and house buying.
It seems so simple now to understand that the only reason the economy didn’t fail earlier is that laissez-faire regulation created a situation where growth was based on people borrowing to consume services, goods and housing that they couldn’t afford and that the entire economy became a bubble that existed only to benefit banks and big corporations.
Moreover as the big corporations’ share of national economies grew so did their influence on policy, creating an ever-accelerating expansion of the bubble to its inevitable bursting point, when ironically the big corporations were saved and the bill sent to the people. Not so much light touch or invisible hand as heavy thump economics.
Inexplicably despite the failure of the economic system, no one so far seems able to suggest an new alternative. Socialism doesn’t hack it, it never worked and the capitalist system’s slightly better success rate was based on technological industrial revolution, the spoils of war, and unsustainable borrowing. The think tank, political party or government that can create a roadmap to greater prosperity based on a new approach to economics that can be modelled, benchmarked and forecast will be able to reshape the world. I honestly don’t give a damn what political party runs an independent Scotland, just that they use the powers of self-determination to set our nation on a clear path to more sustainable growth.
We need to elevate economics; to point it towards a higher purpose than narrow, greed-driven growth as a measure of success. That is the key to creating better nation and it is also the key to winning Scotland’s independence.