New Labour must accept responsibility

The following comment by me appeared in the latest Fund Strategy (27 April).

The British government is presenting the origins of the economic crisis as purely external. It is depicted as an external shock on what would otherwise be a healthy economy. Such a portrayal conveniently absolves New Labour of any responsibility for the considerable pain Britain is about to experience.

Even the raw GDP growth forecasts from the International Monetary Fund (IMF) do not suggest the world is suffering as uniformly as implied by New Labour. For example, developing countries look set to continue to grow this year, if at a lower rate than before, while advanced economies shrink.

China’s output is expected to rise by 6.5% this year and 7.5% next year compared with corresponding falls of 4.1% and 0.4% for Britain. Naturally, the Chinese economy is different from Britain, but the discrepancy goes against the British government’s implication that everyone is suffering equally.

Britain’s performance is also below the average for the advanced economies. Despite America’s position as the epicentre of the global crisis, it is expected to perform less badly than Britain.

But such raw figures only tell part of the story. It should not be forgotten that only last year Britain was widely seen as a model economy. New Labour in turn claimed credit for the apparent end of “boom and bust” and allowing the City to thrive. Yet, since then, Britain’s position has probably deteriorated faster than any other large developed country.

It should be abundantly clear, with the benefit of hindsight, that the British economy was too reliant on the City of London. What seemed like a boon at the time was, in reality, a symptom of Britain’s underlying weakness. The government failed to sufficiently diversify the economy away from reliance on international financial business. As a result, it suffered a disproportionate blow with the onset of the global crisis.

In addition, the manufacturing sector is likely to prove too small and weak to take full advantage of a global recovery when it comes. All the talk of a green economy and green innovation seems to betray a lack of ideas about how to revive Britain’s manufacturing.

The rapid deterioration of Britain’s public finance is another striking indication of the economy’s weakness. New Labour’s once hallowed fiscal rules are conveniently forgotten. The government may argue, with some justification, that the current crisis demands fiscal flexibility. But that simply begs the question of why it promoted such rigid rules in the first place, or its presentation of them as universal truths.

New Labour has been in government for almost 12 years. During that time Gordon Brown was chancellor for a decade and prime minister for the remaining two years. To claim they bear no responsibility for Britain’s economic downturn stretches credulity beyond its breaking point.