http://blogs.birminghampost.co.uk/business/

The importance of five years

By Dr Steven McCabe on May 7, 13 05:47 PM in Economics

David Bowie is undergoing something of a renaissance caused by the fact that there is an exhibition of his stage outfits at the Victoria and Albert Museum in London for which tickets are like 'gold dust'.

For those not able to get a ticket you can always listen to his back catalogue especially his hugely influential 1972 album The Rise and Fall of Ziggy Stardust and the Spiders from Mars which includes the opening track 'Five Years'.

'Five Years' is a typical Bowie ballad in which there is a suggestion that within this period the earth would be doomed to destruction.

Given that Britain was at that time in a pretty dystopian state with industrial conflict and an existential threat from nuclear war with the Soviet Union there may have been many who would have agreed with the sentiments of 'Five Years'.

It is just over five years since the beginnings of the global financial crisis and, coincidentally, that is the maximum period of an English Parliament. As we know, the impact of the crisis are still very apparent it would seem that we are not yet at the point at which our economy can be considered to have fully recovered.

Last Thursday's local elections provide an early, though I accept, limited snapshot of the way that the main parties will performs and much analysis will be made of the economic policies offered by each of the main parties (which may now include UKIP) for ensuring consistent growth. And they will all be considering development of economic strategies for the five years following the next general election.

The thing is, our current situation does not give allow us to be tremendously optimistic.

Despite recent soundings that things are getting better, particularly from the Institute of Chartered Accountants in England and Wakes together with business advisors Grant Thornton, that confidence is improving and we may see economic growth of 0.6% in the second quarter, this is not exactly staggering.

Any growth we do see will be very gradual and, besides, any predictions are made with caution as there is still the strong likelihood that there will be continued economic problems in countries with whom we rely on for exports in the Eurozone.

It therefore very interesting to note that a number of books are considering what the future will really hold and how we should develop policies to deal with the ongoing effects of the global financial crisis. These may give some sense of the five year policies we may be offered by political parties in the campaign for the next general election.

The first of these, When the Money Runs Out by Stephen D. King and to be published at the end of the month by Yale University Press pulls no punches. King believes that we should disabuse ourselves of any belief that what we are currently experiencing is the exception.

Rather, King argues, the economic progress we enjoyed since the second-world-war has come to an end and that austerity is not just likely to become the norm but we are that we could see stagnation reaching crisis proportions.

Anyone who has invested in equities will tell you that returns are not living up to the promised returns. For those who have annuity-based pensions or an endowment mortgage this has resulted in either reduced income or, in extreme cases hardship.

But King's makes the point that as a society we are all relying on rates of growth and interest rates that will provide the basis of a better future for all. As he contends, if consistent economic growth does not return how are we going to pay for the healthcare and social security provision in a country where the average age in rising inexorably?

If we cannot guarantee economic growth we will be faced with the need to either raise taxes or reduce services; precisely the sort of debate that we will hear in the forthcoming general election campaign.

It may be that increasingly we have to get used to a much more divided society or the 'haves' and 'have nots' who can afford the levels of healthcare we now take for granted. This hardly bodes well for a cohesive society based on equality for all.

Another recently published book though sympathetic to King's argument suggests that we should eschew the belief that more will make us happier (or better off) and that we should simply get used to having 'enough'.

In Enough is Enough: Building a Sustainable Economy in a World of Finite Resources published by Routledge in January this year, authors Dan O'Neill and Rob Diertz having consulted over 250 contributors made up of economists, scientists, business leaders and politicians believe that we have been seduced to believe that constant growth is the primary goal of civilised societies.

The argument being posited is that constant growth has made us no happier. Modern society induces us to want to consume more and more and like drug users we do so with little or no regard to the long-term consequences for the finite resources that all things are made of.

Unsurprisingly their message has been is being welcomed by those who committed to the 'green agenda'.

The trouble is with this is that, as we know, much of what we consume is now coming from those countries where there is phenomenal economic growth (such as India and China) and which will have no incentive in agreeing to the policies advocated by O'Neill and Diertz.

Indeed, apart from the Green Party in this or any other country agreeing with O'Neill and Diertz's belief that we should focus on reducing inequality and creating 'meaningful jobs' in sustainable energy rather than increasing growth.

However, the key thesis advanced by O'Neill and Diertz, that we should consider the impact of our actions for future generations has much to recommend it. For those other than global warming deniers, we may be creating circumstances that will result in a far more turbulent environment.

Capitalism, though, has always been largely uninterested in such concerns.

However, two books consider how capitalism might adapt to a changed world.

In The Locust and the Bee by Geoff Mulgan (published by Princeton University Press in March), there is a view that whilst capitalism frequently produces predators (locusts) it can also be very successful in enabling creators to emerge (bees).

In his book Mulgan believes that we should be willing to embrace a new form of capitalism that is committed to creation of new opportunities and in which it serves our need rather than being a dominant force to which we are enslaved.

Mulgan particularly cites healthcare education and the sort of green industries that O'Neill and Diertz believe are crucial to the future as the way in which we should develop economic activity.

In Progressive Capitalism: How To Achieve Economic Growth, Liberty and Social Justice to be published by Biteback later this month Lord David Sainsbury who was a minister in the last Labour government believes that the neoliberalism ushered in by Margaret Thatcher in this country and Ronald Reagan in the US in the 1980s is severely flawed and should be replaced by what he called 'Progressive Capitalism'.

It is instructive to consider the facts to support Lord Sainsbury's view that rampant capitalism is not good for all. For example, in the period 1960 to 1980 the income per capita grew by 3.1%. However, in the twenty years from 1980 to 2000 during which market forces became all important the comparable statistic of income per capita was 2%.

Statistics show that under the neoliberal system so favoured by Thatcher and Reagan those with most access to capital (the rich) used it to get wealthier whilst those without access (the poor) became less well off.

Lord Sainsbury believes capitalism should be more tightly controlled through regulation and, in echoes to that other Lord who has been very active in making economic pronouncements recently (Michael Heseltine), advocates greater support for industry in advancing innovation; especially in regions that have suffered decline in the last thirty years.

Crucial to economic development under progressive capitalism, he asserts, is the importance of an education system that offers opportunity for all and which emphasises vocational and STEM (science, technology, engineering and mathematics) subjects.

Such an interventionist agenda is one hardly likely to find favour among the right wing of the Conservative Party. However, Lord Sainsury's arguments will undoubtedly find favour among coterie of ministers and advisors who will formulate policy for the Labour Party before the next general election.

I would not be surprised if Ed Milliband and his advisors have consulted the latest edition of a book by US Nobel prize-winning economist Paul Krugman End this Depression Now (published by W.W. Norton in February).

Krugman, like that other critic of austerity Joseph Stiglitz, believes that the policies being pursued by governments dealing with the effects of the global financial crisis are making things worse not better. Instead he argues, and based on Keynesian logic, there should be greater investment in using underemployed resources (workers) to enable economies to expand.

And this, I strongly believe, will be the key battleground for the main parties in presenting their economic policies for the five years after the next general election in 2015.

For all our sakes let's hope that such policies are based on enabling this country to be in a much better state in 2020 than it is now; and most certainly, economically speaking, that the predictions in Bowie's song 'Five Years' do not come true.

Business authors

David Bailey

David Bailey - Professor of Industrial Strategy at the Aston Business School, Birmingham
My postings | David Bailey's RSS feed My feed

Stuart Pemble

Stuart Pemble - Construction Lawyer, Mills & Reeve
My postings | Stuart Pemble's RSS feed My feed

John Clancy

John Clancy - Birmingham City Councillor and director of mediafuturesalert.com and justliteracy.com
My postings | John Clancy's RSS feed My feed

John Samuels

John Samuels - Professor of Business Finance, Birmingham Business School
My postings | John Samuels's RSS feed My feed

Chris Tomlinson

Chris Tomlinson - Chris Tomlinson is the founder of social media and online PR agency Friend (frienddigital.com)
My postings | Chris Tomlinson's RSS feed My feed

Andrew Whitehead

Andrew Whitehead - Senior partner at law firm SGH Martineau, leading the firm's Energy & Climate Change practice.
My postings | Andrew Whitehead's RSS feed My feed

Keith Gabriel

Keith Gabriel - A Birmingham-based PR Account Manager
My postings | Keith Gabriel's RSS feed My feed

Beverley Nielsen

Beverley Nielsen - Lecturer, Design Management, at the Birmingham Institute of Art & Design, BCU
My postings  | Beverley Nielsen'a RSS feed My feed

Mike Loftus

Mike Loftus - Director of News from the Future Ltd. Writing on the trials of setting up your own business
My postings | Mike Loftus's RSS feed My feed

Richard Halstead

Richard Halstead - Midlands region director for EEF, the manufacturers organisation.
My postings | Richard Halstead's RSS feed My feed

Karl Edge

Karl Edge - partner at KPMG in Birmingham, specialising in automotive, manufacturing and house building sectors.
My postings | Karl Edge's RSS feed My feed

Peter Owen

Peter Owen - Managing director for construction firm Willmott Dixon Midlands.
My postings | Peter Owen's RSS feed My feed

Dr Steven McCabe

Dr Steven McCabe - director of research degrees for Birmingham City Business School.
My postings | Dr Steven McCabe's RSS feed My feed

Francis Greene

Francis Greene - Professor of Small Business and Entrepreneurship, at the University of Birmingham.
My postings

Alan Gilmour

Alan Gilmour - Director at Cogent Elliott, experienced in marketing, brand development and customer relationship management.
My postings

Paul Noon

Paul Noon - Paul Noon, OBE, West Midlands International Trade Director at UK Trade & Investment.
My postings

Latest Birmingham Post Lifestyle blog

Lifestyle Blog

Birmingham Post staff and guest bloggers from the midlands give you the lowdown on what's happening in your region and some musings on culture in the UK and beyond.

Keep up to date

Sponsored Links