Empty talk on growth

In: Uncategorized

7 Feb 2011

This is my latest comment from Fund Strategy.

Just because you say something emphatically it does not make it true. The government seems desperate to prove it has a strategy for economic growth but it is difficult to take its claims seriously.

Nick Clegg, the deputy prime minister, was the latest to pontificate on the subject in a speech last week in Rotherham. This followed a lengthy interview on the subject on the BBC Radio 4 Today programme.

In response to a question from Evan Davis, the Today presenter, Clegg outlined the main new planks to his approach: a stable economic environment; improving skills, the energy infrastructure and housing; building high-speed rail; and proper regulation. If the accent was different it could easily have been Gordon Brown, the former prime minister and chancellor, repeating the same platitudes. Clegg may have a more inspirational tone than Brown, not a difficult task, but he is similarly lacking in ideas.

The deputy prime minister also talked of how he wanted to rebalance the economy away from finance and reduce its dependence on debt. However, the former goal is shared by all the main parties and is progressing extremely slowly. As for reducing debt dependence this is far easier said than done. The government’s deficit reduction plans will only take public spending levels back to where they were a few years ago.

It seems that Clegg’s speech was at least partly a response to the appalling fourth quarter GDP figures. The criticisms by Richard Lambert, the outgoing director general of the Confederation of British Industry, on the government’s lack of a growth strategy no doubt also stung.

But the coalition’s rhetorical support for growth is not new. David Cameron, the prime minister, gave a speech on the topic at the start of the year and ministers have frequently raised similar themes in the past.

There are several reasons why its strategy will fail even leaving aside its lack of new ideas. From the start of its time in office the government emphasised the importance of curbing consumption rather than boosting output. It cannot easily backtrack now.

More importantly it has embraced the assumption that all growth must be curtailed by strict limits: environmental, moral and social. So it might, for example, commit itself to an apparently ambitious high-speed rail programme or house building campaign. But over time the support for such schemes is watered down so much that, even if they do go ahead, the scale is tiny.

However shiny the suits and polished the public relations the government was intellectually exhausted before it started. It has no clue about a realistic strategy to promote economic growth.