A recession of ideas: the UK’s simplistic economic debate

A recession wasn’t completely unexpected. The UK has been suffering from low growth for some time, and hopes political certainty delivered by the Conservatives’ election win would release pent-up investment were soon disappointed. Of course nobody expected this recession, and this depth. Some growth will be easily recovered as lockdown eases. But there are real concerns that beyond this a recovery will be slow and unsteady.

We need to unlock new sources of growth in the economy. But anyone looking critically at the emerging UK debate on how to achieve this should be disappointed at the reheated mash of simplistic notions and previously discarded ideas. If only reviving the economy were as simple as relaxing the two-metre rule to one metre. Sadly, that is only a very small part of what’s needed.

Freeports similarly fit into the simplistic camp: the excited talk from the government that areas free of tariffs can be transformational is running into the evidence that equivalents in the US employ on average only 2,000 people, and that businesses probably just relocated from surrounding areas—and that’s with advantages the UK won’t replicate. Supporters also tend to overlook that modern trade is about rather more than tariffs. Local communities cannot be blamed for their interest; freeports might be a chance to obtain government money and do better than neighbours. They are hardly, though, transformational for a country.

Prime among previously discarded ideas—overlapping with freeports—is that cutting red tape, particularly in the planning system, will energise the economy. Those recalling numerous similar initiatives in the past know that while in theory, badly designed regulations can be a drag on economic growth, in practice it has proved very difficult to find these, particularly given there is actually a public demand for regulations that protect the environment or high streets. We’ve been reading proposals for easing restrictions on green belt development for so many years that by now it should have become obvious that there’s some major problem, such that this isn’t the answer.

Typically of more use in responding to recessions is government spending on infrastructure with a view to raising productive capacity. Right now there is a widespread political consensus in the UK that this should happen, but it remains far from a panacea. Many projects take a considerable time to deliver, have costs in excess of initial estimates, and might contribute more to leaders’ vanity than to long-term growth. Others that may deliver more for the money, such as greater investment in lifelong learning or improving local bus provision, have typically fallen foul of central government distrust of local authorities. Then there are those like a research projects agency, which we seem to have been discussing for many years without ever going much further than the concept. Labour has long championed a green industrial revolution, an attractive idea which could in theory build new areas of UK strength, but which also appears to need a lot more detail to be a persuasive game-changer.

We shouldn’t write off all these ideas, but rather challenge them as to why this time is different. Such a conversation might also probe rather more deeply about the UK’s international trade, since none seem obviously likely to grow UK exports significantly, to help GDP. Without rerunning the Brexit debate, we might note that over 50 per cent of UK goods exports go to Europe and are therefore subject to higher barriers from next year, now we will not extend the transition period. Perhaps some manufacturing will return to the UK, but most projections suggest reduced exports and greater imports on aggregate.

Indeed, it would be useful for our economic debate to recognise that 70-80 per cent of global trade, both services and goods, takes place within global supply chains. One way of boosting UK economic performance is thus to insert ourselves into these chains, but the competition is fierce, and the voice of relevant businesses is currently belittled by the government. That really needs to change to attract new investments that will contribute to a balanced economic recovery. Nor should we ignore the contribution of small- and medium-sized companies, though they often find scaling up difficult and there seem few new ideas to change that either.

There are of course many UK success stories, and we can easily lose sight of the terrific strengths we have, not least across aspects of services trade in areas ranging from computer games to financial technology, film production to universities. We also excel in producing many complex engineering products and services, and one could list other sectors. Our economic debate does though lose sight of whether we wish to expand them at the expense of others, and indeed there is a question of whether we value some of them sufficiently, like universities—currently under pressure from the fact that international students are unable to travel. We need to put that right.

Many services rely on international travel, and some see Home Office obstructionism as in fact the biggest obstacle, given the international reputation of the UK as being difficult with regard to visas, even on occasions for those attending government organised events. But there is a ray of hope there, a political move that could have long-lasting economic benefits. The offer of visas and potentially residence to Hong Kong citizens could spark new growth, even if we have yet to see the small print. How ironic would it be for immigration to come to the rescue of the economy after years in which migrants were blamed for undercutting it?

Amidst the claims and counter claims of the Brexit debate, as to whether the economy would collapse tomorrow or we would become a beacon of free trade, the realities were lost. Neither extreme is likely, but now we face unconvincing reruns of other greatest hits such as rushed deregulation or ill thought through government investment. These ideas need serious interrogation as we face looser trading relations with the continent and a pandemic recession. We are after all supposed to be good at ideas. Now we need to prove that.