Cameron speech on growth

Interesting that David Cameron’s first major speech as Britain’s new prime minister should be on the coalition’s strategy for achieving growth through economic transformation. As is often the case with such things the headline might sound good but the details tell a different story.

Cameron says the government’s first priority is economic transformation. He proposes this should be achieved by pursuing three goals:

* Tackling the deficit. For Cameron sound finances go hand in hand with economic growth. He suggests this will mean cuts in welfare while he also lauds the creation of the new Independent Office of Budget Responsibility.

* Promoting entrepreneurialism. This includes reducing regulation and keeping tax rates low; government providing modern support to the economy (stable banking, effective competition regime, modern transport links, robust intellectual property framework etc); and working with international partners.

* Rebalancing the economy. This primarily means regional rebalancing away from London and towards the regions.

There are so many problems with this strategy it is difficult to untangle them in a short note. Many of the ideas are recycled from previous governments, including the need for reducing regulation and promoting financial stability, have become cliches.

Perhaps two sets of problems stand out above the others:

* There is a huge gap between his rhetoric and reality. For example, it is easy to talk in general terms about, say, building a modern transport infrastructure or promoting industry but it is far harder to do in reality. In relation to transport, say, the Conservatives have rejected the building of a third runway at Heathrow while rail building is likely to continue at its same anaemic pace. It is also hard to imagine any significant road building programmes. No doubt there will be some investment in transport over the coming years but it is likely to be minimal compared to the needs of Britain’s ageing infrastructure.

* The intellectual framework accepted by both parties militates against economic growth. For example, once the idea of natural limits is accepted then projects beneficial to the economy are likely to suffer. The cancellation of the third runway at Heathrow is a good example.  The emphasis on stability and sustainability – shared with the previous government – also acts against any positive economic transformation.

PS. The Guardian’s take on Cameron’s speech is that he fails to see the bigger picture of a (mythical) free market undermining economic health. It also suggests that the government should follow a New Economics Foundation suggestion and encourage nationalised banks to lend more to green start-ups and other companies.