That pesky growth agenda
Over on The Spectator’s Coffee House blog, Fraser Nelson has mischievously offered a bottle of Pol Roger champagne to the reader best able to articulate George Osborne’s growth strategy.
The joke, of course, is that many commentators don’t believe the government has a growth agenda. And it’s easy to see why they’d say that: various tax rises, a distinct lack of progress on cutting red tape, and a foolhardy determination to drive up energy costs certainly give the impression that the government doesn’t have a plan for growth.
But that isn’t quite fair. The government does, in its own mind, have a growth strategy: keep interest rates low and try to encourage lending and borrowing. Ultimately, that’s why they committed to spending restraint. That’s why they’ve been supportive of quantitative easing. And that’s why they’re now talking about credit easing – that is, subsidizing loans to SMEs.
Easy money and cheap credit – it’s all very 2007, isn’t it? And that’s my big problem with the government’s growth strategy (such as it is) – it is more about propping up a broken, credit-fuelled economic model than it is about creating real, sustainable growth for the future.
The trouble is that the most crucial policy for future growth – finally, after years of resistance, letting markets adjust – could bring with it a degree of short-term pain that many politicians would find unacceptable. Yet while recessions are undoubtedly painful, preventing the liquidation, deleveraging and capital reallocation they entail makes stagnation (at best) the most likely outcome.
Of course, I’m not suggesting that returning to growth is only about ‘letting go’ and allowing things to work themselves out. Supply-side measures to boost enterprise and entrepreneurship are vital too, and that means lower taxes, particularly on investment, and less onerous regulation. We also need a healthy savings ratio and greater capital accumulation, a sounder banking system, and the radical liberalization of public services.
So there is actually plenty the government can do to encourage growth. Right now, I’m just not sure they’re doing it.